Bank account reconciliation is a highly useful business function. It is a process in which the figures stated in the accounting records of an organization are compared parallel to those represented in a bank statement provided by the bank. This is done so that the amount of cash you possess matches what the bank says you have. Huge discrepancies, especially if ignored, lead to repercussions such as overdrawn bank account, bounced checks and in some extreme cases, your bank account may be shut down. This task demands a lot of time and care and as such can be given to an expert bank reconciliation service provider to ensure the reconciliation of accounts go smoothly.
Any demanding task is prone to errors. Some frequent reconciliation errors include incorrect posting, i.e., if a transaction was posted with an incorrect amount, incorrect dates, missing entries, unexpected charges such as additional bank charges and more. These errors are annoying but avoidable. An expert in the field of bank reconciliation can eliminate these errors. They use the latest software and leave no room for error with their methodology.
Differences quite commonly arise between a bank's records and an organization's own records, especially when the number of transactions is high. It is highly important that these differences are looked upon and rectified as each may point to a different error that could snowball into something highly detrimental to the organization's bank balance. Therefore, it is advised that an organization performs bank account reconciliations regularly. Let us look at how reconciliation of accounts can benefit an organization.
A review and comparison of the bank's records and your organization's own accounting records may reveal certain transactions that aren't recorded in your organization's records but are recorded in the bank's records. Any transactions by unauthorized users that were intended to steal money from your account will be brought forward. This may not undo the negative actions of an employee done in the past, but you may be able to prevent future theft avoiding any unnecessary cash bleed.
Errors are not uncommon to the accounting world. Accounting is an intricate function that involves vast amounts of data and despite there being measures implemented to avoid any mistakes, they still occur not uncommonly. Errors may be as simple as a data entry error. A reconciliation procedure will allow you to notice any errors in the records and banks can easily rectify them with due notification
Highlights Bank Errors
Errors may arise from the bank's side as well. An employee may have recorded incorrect numbers with your account or entered the numbers meant for your account to another account or perhaps omitted the amount altogether. To reconcile bank statement gives a company adequate time to inform the bank of the error and the bank then further looks into the error and rectifies it.
There may be quite a considerable wait time between when cash flows out to vendors and employees and payments roll in from clients and customers. This creates uncomfortable situations especially for organizations that are operating on a low amount of cash reserves. Frequent bank reconciliations can allow business unit leaders manage or postpone payments which in turn would protect organizations from business overdrafts, bounced checks, insufficient funds and incurring interests.
The accounts receivable function is better handled with the help of reconciliations. All is fine if the vendor's or client's payment gets a green flag by the bank, no further action is required as the receivable is no longer outstanding. However, if the payment gets a red flag, i.e., it isn't cleared, it signals the company's management to become more vigilant during collection.