Why It’s Important to Reconcile Your Business Bank Account

Why It’s Important to Reconcile Your Business Bank Account

The process of reconciliation is to match your company’s internal financial records with the information provided to you from the bank. A reconciliation is essentially the same as balancing your checkbook, but for your business transactions. The purpose of reconciling is to help you identify problems and to be able to see how your business is doing on a regular basis. By reconciling regularly, you should be able to catch fraud before it gets out of hand, know how much cash you have, and make sure the transactions entered in your accounting software were done properly.

Accounting software has made the reconciliation process very easy. To reconcile you need to grab your bank statements and go to the reconciliation function in your software. Enter in the ending statement balance, and then match all transaction on the bank statements to the transactions in your software. Once reconciliation is done, the balance on your financial reports should match the bank statements. If the bank statements ending balance does not match the internal reports, you should be able to explain why. Reasons the balance do not match could vary from a check has not yet been withdrawn or a deposit that is still being processed at the bank.

Reconciliation can be done on any kind of account such as banks, vendors, customers, and equity. However, in small business reconciliation is done on bank accounts, credit cards, loans and lines of credit on a regular basis. For a small business, reconciling is best done at the end of each month. This allows you to view your financial reports on a monthly basis with confidence.