This article is related to the reconciliation of a bank statement. A bank statement is related to the comparison and adjustment of the internal records of a bank. Moreover, they bring up the two records in proper alignment. It is one of the important tools in the accounting section of a company. This content will clear your query about “why is it important to reconcile your bank statement.”
Bank statements are an important part of our financial activities. They are the summary of everything you do. Moreover, they are records that you and the bank have for safe transactions. Frauds can happen at times and the banks are always on time to send you the statements. So you can reconcile and tell if there is anything wrong.
Furthermore, in case of suspicious activity, you can tell the bank about it.
What is a Bank Reconciliation Statement?
This is an important process for financial companies, banks, and organizations to ensure error-free transactions of money. Through this process, the bank account’s balance is reconciled to the financial statements. The differences that happen can be taken care of right away. Also, this process confirms that the transactions are available through bank statements. And a complete review has been done with proper checking. This can make a person more certain about the differences in the book balance and cash balance.
Three Methods of Bank Reconciliation Statement:
The question that arises in every mind is, “What are the steps to reconcile a bank statement?”. Following are the three main steps that make the reconciliation process a complete one:
- To compare the statements
- Also to adjust your balances
- To record the reconciliations
How Reconciliation Works?
Before moving ahead to the content, we need to have an idea of how this process works. We have discussed the three main steps before. Now we will know about the working of this entire process.
Working on the Reconciliation Process of Bank Statements:
- Firstly, you need to get bank records and all the business records collected. These collections should be valid.
- Secondly, you should have an idea of the bank deposits and bank withdrawals. Study the values well so that there is no discrepancy.
- Then the income and expenses should be properly checked.
- After that, the bank statements should be correctly adjusted. And they should reflect the company’s all transactions in the given time.
- Then, the company’s cash accounts should be balanced with all the cash charges and deposits accounted for.
- Lastly, you should finalize the end balances. Also, you should ensure that the records are matched and appear to be equal. Moreover, the non-adjustment should be eradicated. If the process consists of any error or mismatch, it should be repeated.
Reasons to Reconcile Bank Statements:
Why is it important to reconcile your bank statements? Reconciliation of a bank statement is mandatory. And some reasons make it necessary. Following are the major reasons:
- It brings an overall view of the suspicious transactions. And do not let the scammers get a chance to do fraud.
- Furthermore, can give you an error-free and accurate record of business transactions. The accounts of companies or organizations can be reliable if they contain any mistakes.
- The companies can have a proper track of the bank penalties, fees, and even the entire transactions.
- Reconciliation makes the accounts free of double payments and missed payments. The companies would not have headaches related to improper or double payments.
Benefits of a Bank Reconciliation Statement:
The bank statement reconciliation has some advantages that can never be ignored, such as:
– Error-Free Transactions:
Error-free transactions are one of the reasons why it is important to reconcile your bank statements. This process helps to look out for possible errors in transactions. The errors can lead to major issues in the financial aspect of a company. Moreover, these can also affect the revenue of the specific company.
– Fraudulent Impacts Are Eradicated:
The frauds that could happen in case of no bank statement reconciliation are unable to happen when you read it. Moreover, there appear to be fewer chances of fraud and scams because of this process. These bank statements are just like official accounting tools for the proper process for transactions.
– Protection Against Double Payment:
When the reconciliation process is happening, it can protect the creditor’s money from double payment issues. Also, it mostly takes place in multi-dealing organizations. The identification of these mistakes can save the employees from many blunders.
– Tracking The Transactions:
Moreover, this benefit is quite important, and it is about tracking your transactions. If you are about to transfer credit to another company, you need to track it down. And keep an overview of where your payment heading is. Moreover, you can also have an idea about the person or company receiving your payments. Without any worries, you can transact locally or around the world.
Bank Statement Reconciliation FAQs:
What Appears on the Bank Reconciliation Statement?
The bank reconciliation statement consists of a starting point of the ending cash balance. Also, the deposits in transits are added to it plus the checks that are not clear. They are subtracted as a whole. Further, the bank reconciliation statement appears to have a bank balance. It also includes cash book balance and many more relevant things. Transactions should have valid dates so that there is no chance of complaints or errors.
The above table shows the data of a bank statement. It is one of the simplest examples. Now, if we take $20 as the withdrawal amount, then it would be subtracted:
As a result, $800 is the final adjusted amount. This example only shows the adjusted amount in a reconciled bank statement. A finalized one has much more aspects than this brief example. Moreover, the adjusted amount is the one that can be further applied to a reconciled bank statement.
What is the best time to reconcile a bank statement?
Whenever you receive your bank statement, reconcile it. But it usually happens at the end of the month so make sure to do it.
This piece of content explained all the details of a bank statement reconciliation. It includes the reasons that make it necessary to reconcile. And include these vital financial components into your small-scaled businesses or large-scaled ones. This will guide you regarding your choice of bringing this process into daily use for your business and financial procedures. Just give a read, so that you can have a clear idea of why it is important to reconcile the bank statements.
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