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Bank Account Reconciliation

What is a Bank Account Reconciliation?

  • A process when you compare your financial records with the statement you receive from your financial institution to verify that both your records and the records of the financial institution are in agreement.
  • A completed bank reconciliation statement shows cleared transactions, outstanding transactions and real account balances.
  • As a Business, you should reconcile any account for which you receive a financial statement. Eg. Bank Accounts, Credit Card Accounts and more.

Why should you reconcile your Bank Account?

Theft Prevention

Comparing your records transactions with your bank’s financial transactions will help find any ambiguity or errors that might be in either places. Any charges in the bank accounts which you might be unaware of, including bank fees etc can also be spotted. This would also reveal a transaction initiated by an unauthorized person who is attempting to steal money out of your account.

Prevent Errors

Bank Reconciliation will also promote accuracy of your records, and help reveal any mistakes, either by your Bookkeepers, or Bank employees in recording a transaction. It is common for Bank employees to make human errors while recording a transaction, either a credit or a debit.

Accurate Balance

Transactions in your financial records are recorded when checks or given out or deposited. However, the bank balance in your financial records is not your true bank balance because some of these transactions are still outstanding and have not yet cleared the bank. An outstanding transaction is a transaction you have started that your bank has not yet processed. A transaction clears the bank when your bank processes the transaction. Without a bank reconciliation, there would be no other method to record an accurate balance. Checks, sometimes remain open at the end of the statement period because they may take a few days before clearing, or might not even clear the account if it is a bad check. Without a reconciliation, your Balance would be inaccurate.

Bank Accounts in Good Standing

Reconciliation will also help you manage your finances and making sure your Bank Accounts have the balances they need for clearing of checks or Bill payments you might have made or would make in the near future. Reconciliation helps prevent overdrawn accounts, and also helps reduce Business costs due to bounced checks, overdraft fees, and hence, protecting your reputation as a financially viable business with creditors.

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