A bank reconciliation is a way of double-checking your financial records. Compare your bank statements to those of your business accounts to do so. Both sets of records need to be in sync. You’ll need to figure out why if this isn’t the case. The purpose of bank reconciliation is to ensure that everything is in good working order. Bank statements are trustworthy financial records on which you may rely. Read more about Bank Reconciliation Statement best practices.
Bank Reconciliation Helps Out:
- You can identify and correct errors by comparing your books to theirs.
- You’ll be able to see and fix the bookkeeping mistakes.
- Detect and report fraud and erroneous payments.
- Examining expenditures may assist you in detecting any mistakes or suspicious behaviour.
- Take a look at how the business is happening rather than just guessing the process.
- You can keep track of financial performance using a set of statistics that are regularly evaluated.
- Use tax breaks to your advantage.
- When doing your bank reconciliation, you can categorise tax-deductible spending.
- Make sure you have everything you need to submit your taxes.
- You’ll need a properly reconciled record of business revenue and spending to prepare tax returns.
- Keep a record of your earnings.
- Use this time to allocate expenses to projects and calculate how much money you earned from them.
The first piece of bank reconciliation advice is to make sure your account has enough money in it. Having a separate bank account for your business is a terrific idea. As a result, you’ll be aware that every transaction on your bank statement is relevant to your business and should be reflected in your accounting records. You’ll need to figure out why they don’t match. It’s most likely that you misstated some data in your accounting records, entered it at the incorrect time, or completely skipped a transaction. When you utilise the same account for both work and personal purposes, bank reconciliation becomes considerably more complicated.
Bank reconciliation is a technique that involves reconciling your bank accounts. To conduct bank reconciliation, all you need is a copy of your business accounts and a list of bank transactions from the same period. You go around the room, attempting to match them up. It can be mind-numbing if you’re doing it manually with paper bank statements. However, there are several innovative steps to reduce the load. The vast majority of banks will quickly provide the data to online accounting software.
In Australia, who needs and how to compile a bank reconciliation statement? As a business owner, you must pay close attention to the efficiency of your cash flow. Preparing a bank reconciliation statement is a simple way to keep track of the money coming in and out of your business. You should be aware that every successful firm relies on financial discipline. Maintain the integrity of your company by periodically updating its financial transactions. Using the bank reconciliation statement to summarise its banking activities helps you identify anomalies in record-keeping or uncover fraud.
7 Best Practices While Preparing a Bank Reconciliation Statement
A bank reconciliation statement is a statement that shows how much money has been transferred from one account to another. Compare the balance on your company’s bank statement to the balance in its cash book, which you have updated. If there are any discrepancies, it specifies them. It allows you to investigate the causes of it. If there is no difference, your accounting is on the proper track.
- Start with a bank statement
Begin by entering a list of your company’s bank transactions into Bank Statement Star. It’s available by connecting to your company’s online current or credit card bank account. You may need to consult both of these accounts’ statements. You can also request that the bank send you the statement.
- Think About Using Accounting Software
Your bank may transmit the information immediately to your accounting software. It’s also possible that you’ll have to do it manually. Refer to your bank statement for entries and look for reconciliation items in your accounting programme (cash book or ledger). Select these entries and then click the “Reconcile” button or option. A bank reconciliation report is generated by online accounting software systems such as Snoww Books software. Examine it and make sure it’s correct. Check to see whether you’ve compared all of the relevant entries. All outstanding or uncleared checks and deposits in transit should be checked.
- A Bank Reconciliation Statement’s Balance
During the procedure, go over all of the company’s financial transactions. Pay close attention to the transaction’s values, timeframes, sources, and beneficiaries. Keep a record of any checks that are presented or issued. The balance in the bank reconciliation report frequently includes things such as bills paid in cash by clients, bank charges, and uncleared checks.
- Differences and their causes
You may use the bank reconciliation report to figure out why the real amount in your bank account differs from that in your cash book or ledger. It is a challenging task. During the reconciliation procedure, you may require the services of a professional accountant who can handle all forms of charges and debts. To explain the variances, you should give a list of explanations in the bank reconciliation report.
- Make the procedure more automated.
As you probably already know, any paper-based administration takes longer and is more prone to errors than an automated version of the same work. The same may be said for the bank reconciliation procedure. There are tools available to automate this process, or at least a portion of it, to make it more efficient and manageable.
- Banks Make Mistakes As Well
While this is not typical, it is conceivable that the bank made a mistake. They may debit an incorrect amount from our account or deposit an incorrect payment; if we have multiple accounts with the same bank, they may make a mistake when deducting or depositing; and so on. As a result, if you discover a mistake for which no explanation can be found or you are unsure, contact your bank.
- As the last option, reconcile the items.
Considering the disparity as a reconciling item and then forgetting about it appears to be a simple and appealing approach. However, the gap will remain, so this is not a true solution. If they pile up too much, the bank reconciliation will lose its significance, the accounts will no longer represent reality, and the resultant jumble will become increasingly difficult to sort out. We must request account balances that we have not received, as well as invoices and receipts that have not arrived, to ensure that we have all of the information and documentation we require, as well as that the books are up-to-date, as described in the first section.
This explains how to produce a bank reconciliation statement for an Australian firm. Keep in mind that the activity may look to a layperson like it would be tedious and time-consuming. An accounting software and a dependable accountant will be more beneficial to you.
Iconz Business Solutions is a Sydney based accounting and consulting organization. We offer a wide range of services, including management consulting, accounting, and taxation, all of which are delivered using cutting-edge technology or software. Our goal is to supply and manage our clients’ businesses by giving them sound guidance that is efficient, productive, and lucrative. By doing so, we hope to help and improve our clients’ businesses’ success.
Also read How to Choose the Right Bookkeeping System for Your Business (Single-Entry and Double-Entry)?