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How Bank Reconciliation Process can Fix Accounting Errors?
Accounting is an activity that generally gets ignored in business organizations due to the importance is given to revenue-earning activities. However, it is a primary function. The bank reconciliation process in accounting holds great significance. It enables access to accurate business data which helps in conducting a thorough analysis of the business operations. Any discrepancies in the accounting data could lead to wrong decisions taken by the higher management which can prove to be detrimental to the business in the long run.
Significance of Bank Reconciliation in Accurate Accounting
The Bank reconciliation process is an ideal solution for fixing accounting errors. It enables the organization to understand the differences between the balances displayed in the bank statement and the balance in the company’s records and taking corrective measures.
Mainly the errors occur due to the negligence of the accounting staff like missing some of the transactions either by the bank or by the organization. Bank account reconciliation needs to be performed regularly to ensure the accuracy of the accounts.
The latest accounting software like QuickBooks has further simplified these tasks. Business management concerned about ensuring the authenticity of their accounts must undertake reconciliation of bank accounts at least once per month. The accounts bank reconciliation involves the following simple steps:
The most significant step bank account reconciliation is ensuring the validity of the balances and dates in the accounting statements. All the entries must be thoroughly checked.
Companies generally make a few adjustments in their accounting records which creates disparities with the bank statements. These alterations must be recorded in a professional manner.
Outstanding checks are known for creating complexities in financial statements. It should be ensured that all the entries are made as soon as these checks are received. The sequence of the checks must be kept in mind while making the entries. Entries of checks received in the last days of the month must be made carefully.
Bank reconciliation ensures that time variance is considered while making the entries in various statements.
Matching the end balances of assets and liabilities is a simple step followed during bank reconciliation to make the accounting records accurate. Any mistakes in the statements are corrected during this process.
What are the Consequences of Non Bank Reconciliation Process?
Neglecting to reconcile your bank statement can lead to several consequences. Firstly, any disparities between your accounts and the recorded amounts should be investigated and clarified. Reconciliation serves as a preventive measure, enabling you to spot issues before they escalate.
Crucially, the bank reconciliation process is a vital defense against fraud, offering a safeguard against potential financial losses. It’s worth noting that federal laws provide consumers with more extensive protections for their bank accounts compared to businesses. Therefore, it becomes particularly critical for businesses to promptly identify any signs of fraudulent or suspicious activities since they may not always rely on the bank to rectify fraudulent or erroneous transactions.
Reconciliation of bank accounts is necessary for keeping a reliable monetary record of the business and creating a roadmap for the future.
Cogneesol is among the best Bank and Credit Card Reconciliation Service providers to business organizations around the globe. The services offered by Cogneesol are aimed at enabling business enterprises to reduce their operational costs and optimize their revenue earning potential. For more information, you can visit us at [email protected] or call us at +1 646-688-2821.
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