In a perfect world, whatever is left in your business bank account at the end of a month would align with what your company earned or spent on that month. Unfortunately, this world isn’t perfect.
Things can get out of hand due to delays in payment processing or deposits. Any discrepancy between business accounts and business records might lead to overdrafts and penalties.
That’s why the providers of bookkeeping services in Beverly Hills prioritize bank reconciliation. Bank reconciliation is a method of tracking cash flow in small businesses. It compares bank statements to the company’s financial records, allowing you to locate any issues and correct them as needed.
Understanding Bank Reconciliation
Bank reconciliation is a procedure that ensures your company’s bookkeeping and balance sheets are in tandem with its financial statements and bank records. You can reconcile the business’s records with its checking account, credit card statements, and other transaction account documents.
According to the providers of bookkeeping services in Beverly Hills, bank reconciliations are a crucial component of small business accounting. They are especially beneficial to any business using the accrual method, where you maintain records of expenses and revenues when you complete or earn them, not when you receive or make payments.
When comparing account statements, you must look for discrepancies. Maybe you or a team member didn’t record a purchase, or there can be another issue hiding there, such as an employee using the business’s card to make unauthorized purchases. Experts of bookkeeping services in Beverly Hills suggest using the bank reconciliation process to ensure the company hasn’t been overcharged or inappropriately charged by the bank for any goods or services.
Include all transaction accounts the business uses to make it effective during bank reconciliation. These transaction accounts may include PayPal accounts, credit cards, and debit cards.
The Importance of Bank Reconciliations
Accountants offering bookkeeping services in Beverly Hills prioritize bank reconciliations when working with small businesses for the following reasons.
1. Monitoring Expenses
You can identify areas where your business is overspending during the reconciliation process. For instance, you might have active subscriptions you don’t need anymore or duplicate accounts. You might also note that the costs of certain services or products have increased over time, and your company might be better off using a relatively inexpensive option.
2. Monitoring Accounts Receivable
During account reconciliation, you will see which vendors or clients are delaying payments and who is currently on their accounts. If there is a problem with the cash flow, reviewing accounts receivable will tell you where to make adjustments.
3. Spotting Fraud
Detecting fraud in small businesses gets easier when you review your bank and transaction statements every month and compare them to your organizational records. As mentioned earlier, employees may use the company’s accounts for non-business purposes or company credit cards to finance personal purchases. Similarly, reviewing bank statements lets you detect payment fraud, such as vendors tampering with checks.
4. Pinpointing Bank Errors
Even banks can make mistakes sometimes. Bank employees may read a check wrong. If you find any bank issues, you can act quickly and ask the establishment to correct them.
Wrapping it Up
Bank reconciliation is mandatory but can distract business owners from other critical aspects of running their company. When that happens, you should not hesitate to go for professional bookkeeping services in Beverly Hills.