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How Monthly Bank Reconciliations Can Help Save Money and Prevent Fraud?
Businesses, in general, follow the system of double entry bookkeeping. One transaction is set off against another and two entries are always posted simultaneously. For example, a payment made in the cash book for cleaning services will be entered immediately under profit and loss “cleaning” head. Thus the two, cash book and profit and loss can be said to be balanced.
Not so with bank reconciliations where entries made are not posted together and therefore there will always be a difference in the amounts on a particular day. Why does this happen? The same example was given before can be referred to again. A check is issued for cleaning services by crediting cash and debiting P/L account. But the vendor presents the check to the bank after a week. Hence for that period, your balance in the bank will be more than what your cash book reflects.
Conversely, in the case of a payment received by you, it will be entered in the cash book immediately but the check will be deposited in the bank after a day or two. For that intervening period, your company’s books show more cash than there is in the bank. It is therefore imperative that bank reconciliation is carried out every month to know the true state of finances. However, being a long drawn out procedure with hundreds of entries every month even for a mid-sized company, it is always advisable to hire Bank reconciliation services for monthly bank reconciliation, both to save money and prevent fraud.
How is this possible –
Correct reflection of your financials – Once your bank statement is balanced with your cash book, you can be sure that the two reflect the true state of your financials. This means that based on the balanced certificate you can take crucial business decisions as the cash position of your company is clear to you. You also know about cash flow, the position of working capital requirements and the need to make provisions for future capital inflows. Unnecessary borrowings need not be resorted to thereby saving money on the outflow of interest payable.
Quick rectification of discrepancies – Monthly reconciliation is crucial as there is a constant need to check any discrepancies that might have crept in. When the process is followed scrupulously over fixed intervals, the possibility of errors remaining for extended time periods is totally eliminated. Excess payments made, errors in checks drawn or wrong entries are quickly spotted and rectified. Thus any form of revenue leakage or an adverse impact on the finances is averted, thereby saving money.
Eliminating protracted litigation – If monthly reconciliation is not done and errors are not weeded out, there is always a chance that issues might crop up later. Reverting to accounts and transactions of many months back will eat into precious time and manpower resources. Getting old records for protected litigation with clients can be a drain on resources. When left in the hands of professional bank reconciliation services, you can be sure that reconciliation will be scrupulously carried out every month and such likelihood will not arise, saving unnecessary expenses.
Pre-empting fraudulent transactions – Bank reconciliation is a sure way to pre-empt any attempted fraudulent transactions. This is because your internal books of accounts are being balanced with the books maintained by an external agency, the bank. Hence any effort to manipulate books and entries by employees will instantly come to light enabling you to take corrective action. It has been seen that bank reconciliation kept outstanding has resulted in major frauds and scams, seriously denting the financial standing of that company.
Ensuring audit accuracy – Once your bank reconciliation is finalized, it means that most heads of accounts that have a direct bearing on receipts and payments are balanced too. This facilitates a precise audit of your accounts and certification by auditors. Once this is completed you can certainly say that not only is your balance sheet accurate and reflects the true financial standing of your company, there are also no hidden bugs and scams in it.
All this is possible only when your bank statement is balanced monthly with your internal books of accounts by professional bank reconciliation services.
Also Read: How Bank Reconciliation Process can Fix Accounting Errors?
Cogneesol is a leading provider of bank reconciliation services and our expert team ensures that it this is done every month scrupulously. Get in touch with us at [email protected] to know more.
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