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For any firm wishing to maintain a responsible understanding of their business’s finances, it is prudent to ensure everything checks out, especially the numbers behind the operation. Typically, every month, businesses should be cross-checking their financials that appear in their accounting platform with the corresponding figures on their bank statements. But what happens when they don’t match?
In this article, we break down the fundamentals of bank reconciliation, trace the common sources of these issues, and give some advice on how you can fix and potentially mitigate the chance of running into them again.
What is bank reconciliation?
Bank reconciliation refers to the process of comparing the logged transactions in an accounting software, such as QuickBooks Online or Desktop, with the transactions reported on a bank or credit card statement.
By comparing the two, individuals can match the cleared transactions, detect outstanding transactions, and discover duplicate entries or any other errors by either the bank or business owner. This will help with identifying any discrepancies within the bank reconciliation process, and business owners can ensure their accounting records are up to date and accurate.
It is encouraged to perform bank reconciliations at least once a month, although some choose to do so more frequently to guarantee accuracy and transparency.
How do issues arise?
Mismatched records can come from a number of different sources. The first source, and arguably the most obvious, are data entry errors which consist of someone inputting the information incorrectly.
Another common issue is timing differences. For example, you may have recorded a transaction with the accounting software for one month, but the bank processed it the following month, resulting in a discrepancy between the totals.
Additional discrepancies often arise from forgetting to log certain transactions, bank processing delays and errors, lack of information regarding certain transactions appearing on your bank statement that make it difficult to match it to your accounting records, and worst case scenario: fraudulent activities.
How can I solve them?
To safeguard your business from this issue, it is crucial to maintain routine and diligent attention towards your finances, performing at minimum monthly reconciliations to ensure nothing is slipping by.
How can I prevent them?
Utilizing reliable software, such as QuickBooks, can help automate the bank reconciliation process and will help to reduce errors and improve the process over time.
It is crucial to inspect your financial records for any errors in a timely manner, especially if there are large volumes of transactions each month. Pushing these types of tasks off to a later date will make the bank reconciliation process time-consuming and will make it difficult to find the discrepancies in your records. Being consistent and being current with your bank reconciliations will help in preventing and catching errors.
Next Steps
Dealing with seemingly irreparable bank reconciliation issues? Want help creating a forward-thinking plan that ensures you never experience an issue like this again? Contact The Hechtman Group today to begin strategizing your defense. Our team, rich with industry experience, will work with you to formulate reporting practices and structures that makes sure nothing like this will ever happen, again.
At The Hechtman Group LLC, we understand the burdens small businesses endure in assuming more than one role to support the organization. That’s why we offer highly experienced client advisory services (CAS) for companies who can benefit from outsourcing their accounting, CFO, or Controller consulting needs. Additionally, our comprehensive expertise in QuickBooks certified ProAdvisor means that we can create a tailored accounting solution to centralize your finances and simplify your books. Our CPAs and accountants can guide you through all the necessary steps while also creating best practice opportunities for long-term growth.