Being a business owner, I am sure you cross-verify everything to ensure the number of efforts and the capital you’ve put in your business doesn’t run in circles. Similarly, performing account reconciliation to maintain positive cash flow and keep your business financially healthy is inevitable. But do you know, what does bank and credit card reconciliation means? To put across, reconciliation of an account is the process of matching your bank statements with the cash inflow and outflow of your business.
Why is bank and credit card reconciliation imperative?
This accounting process proves and documents that the balance amounts are in agreement. The bank and credit card reconciliation is a fundamental activity that assists businesses to find discrepancies and frauds in books. Typically, there are two ways to reconcile bank statements:
1. Documentation review-
This is a very usual account reconciliation process, in which bank documents are matched with the bills in hand to find out the errors in each transaction.
2. Analytics review-
This is another common process, in which, businesses guesstimate the actual amount that should be in the accounts based on the previous accounting activity.
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How do businesses benefit from bank and credit card reconciliation?
- Beforehand Fraud Detection
Nothing can be done if the fraudulent activity had taken place in your business. But with the help of a reconciliation process, you can detect the red flags in your books. In this way, you can easily devise some effective strategies to prevent your business from such frauds. You can easily reconfirm whether the checks have been deposited on time or if any unauthorized transaction or transfer has taken place and a lot more.
- Averts Administrative Problems
Reconciliation process not only assists you in accounting issues but also addresses administrative problems that need your attention. For instance, you might need to reassess the way you handle your cash flow and the accounts payable/receivable process, or maybe change the accounting system or processes you’re adhering to. If your systems and processes are working simultaneously, you can easily keep track of the outstanding checks, detect banking errors, avoid paying bank fees for insufficient funds, and a lot more.
- Keeps Mistakes At Bay
Banks are reliable, and we all know that, even though they have the right systems at the right place, mistakes do happen; perhaps it’s a small data entry error. You can bring those mistakes in the limelight and ask your banks to correct only when you reconcile your accounts accurately.
- Establishes Accurate Balance
With the help of a reconciliation process, you can easily understand which transactions have been cleared with the bank and which are still pending. However, keep in mind one thing, the check is deposited in the month end, the bank would show that transaction in the next month in your books.
- Discovers Income Fluctuations
If a business owner does not reconcile its bank statements or not even reviews it once in a blue moon, then you’re not aware of the potential income issues or shortfalls. However, if you delegate these tasks to the right accounting service provider, you can easily keep track of your expenses as you’ll get accurate reports on a monthly basis. This will help you spot the income fluctuations and devise better strategies.
- Timely Bills Payments
It is obvious that running a business requires capital funds to build infrastructure, pay salaries to the employees, etc., until you have a flow of income. That’s the reason you should be aware of all the bills, for which the amount in your bank account is automatically deducted. So, reconciliation helps you to keep track of all those transactions as well.
- Tracing Fees & Interests
Banks might deduct several payments, interests, or deduction amounts that you might not be aware of. But with reconciliation, you can add these kinds of deduction in your own book and detect discrepancies accordingly.
- Direct Debit & Credit Transfer
To save time, companies often allow their banks to receive and transfer payments to the vendors’ accounts directly, but they forget to add the same in their own cash book. This is where reconciliation can help you to keep track of those transactions.
Cash is the prime factor in any business for executing everyday operations successfully. This cash availability is ensured with the help of bank and credit card reconciliation. I hope after reading the above article, you will get an idea, how to reconcile your bank statements and how important it is for your business’s financial growth. In case, you are still facing any difficulty in bank and credit card reconciliation; you can outsource the same to Accounting To Taxes and get the assistance of accounting experts for a convenient, quick, and error-free reconciliation!