Every thriving business needs to monitor its transactions every time, especially its bank transactions. The bank’s role in the cash inflows and outflows helps the entrepreneur manage his business better. Banks, in turn, issue bank statements to update firms of their business’ banking activities or transactions. This statement will show that all banking transactions, collections, and payments were posted and processed through its bank account.
Businesses use bank reconciliation statements to check if bank records and their company records of bank cash flows match. Usually, the company’s book balance of its cash will differ from the bank’s account balance. It’ll be one or more reconciling items in the company’s book of accounts. Unreconciled items may result in overdraft fees, unfunded checks, or bounced checks due to an unmonitored cash balance in the bank. If it’s not managed correctly, the bank may close the company’s account with them.
Bank account management is essential to every business. Good account management means the firm is an excellent company to do business in the industry. It’s also equivalent to a good credit standing and a sound business management system. To have this good reputation, companies employ reliable accounting staff or hire reputable bookkeeping services to do the job.
Some companies opt for a more controlled workplace where they employ their bookkeeping staff to do the job. In smaller or family-run businesses, the owners do the bookkeeping themselves. It’s these firms who just copy bank reconciliation statement templates or bank statement templates available online like at bankstatements.net and other websites, where banks and businesses alike may download and use the templates to their advantage.
The business world is full of materials online to help with keeping accounting records. Also, many business centers and bookkeeping firms offer efficient services to manage accounting books effectively. Transactions and business records are kept in systems that provide easy access, and at the same time, quickly handled reconciliation statements.
Here are some bank reconciliation basics every company owner should know.
1. Deposit Transactions
Cash, check, and other deposit transactions are reconcilable items that may reveal discrepancies between the company’s Cash in Bank and the bank’s Bank Statement. It typically occurs when checks are issued with insufficient funds or when unfunded check issuances occur. Cash deposits may also cause issues during reconciliation if there are mispostings or inaccuracies in the amount recorded according to company records.
2. Withdrawal Transactions
Withdrawal transactions are made to fund cash purchases, advances, replenish petty cash, or the company’s revolving fund. It’s usually recorded as the Cash on Hand in the company’s accounting books. The withdrawal transaction will become a reconcilable item in cases where recorded withdrawals or advances were not properly liquidated or there’s a discrepancy in the amount recorded.
3. Bank To Bank Transfers
Many businesses worldwide are experiencing recording issues due to the e-payment and mobile banking era. If there will be problems with the sender and recipient details, cash sent will not be released nor received. It will create a floating item in the company’s book of accounts. These float items will be difficult to track down. Sometimes the sender firm must trace and correct records, which can take months before the float amount is credited.
4. Bank Charges
Bank charges are not usually considered when setting up or opening a bank account. Companies, especially those start-ups, basically assume that all transactions will go smoothly and that bank charges will be easily avoided. There are instances in business, especially during calamities, where banking transactions are halted in the middle of the day. It may hinder the funding transactions and other banking activities that will result in bank charges.
Bank charges may be waived or avoided, but it needs to be primarily monitored to prevent a chaotic reconciliation.
5. Bank Interest And Taxes
Basic in every business is the presence of Bank Interest and Taxes. It may be minimal, but it will cause a problem during reconciliation. This interest and taxes amount will post a difference in the Cash in Bank summary from the company’s accounting books versus the cash balance in the Bank Statement.
6. Total Book Balance
The firm’s total book balance includes the recorded cash in bank balance. It includes checks issued for purchases and payments and other receivables paid through its bank accounts. Every cash receipt and payment transaction through the bank account is reflected in the bank statement. This company’s cash record or book balance should tally with the company’s cash balance per Bank Statement every transaction cut-off.
In Summary
The book balance of a company’s cash in a bank does not always match the Bank Statement. It’s the reason why companies should perform regular bank reconciliation. Most of the time, discrepancies in between will mean unrecorded cash in bank outflows or inflows. Bank mispostings may also happen that will cause the need for reconciliation.
Additionally, it will be very beneficial if the business owner is aware of what to look out for and understands the implications of these reconciliation basics during bank reconciliation. And, for the sake of the company, it is good accounting practice to perform bank reconciliation correctly and on time.
