Archive for January 12th, 2012

The Importance of Monthly Bank Statement Reconciliation

January 12th, 2012

The proper reconciliation of bank statements is vital for any small business. Even if you don’t have an accountant on staff, this procedure must be done monthly. Whether you use software such as QuickBooks, or you simply keep track of your bank records, you need to double-check that everything adds up.

Catching Errors

Even if you implement strict control measures, the potential exists for human error in . If companies fail to reconcile their bank statements every month, these errors may go undetected and they could be costly. For example, if a teller at the bank calculates a deposit incorrectly, the company may end up short of the funds it needs to continue doing business. Or if checks you have sent out are lost, or simply not yet deposited by the payee, you might see your bank balance and think there is more money in your account available for you to spend then would be wise. And if those lost checks are found and deposited, and those checks that someone has been holding onto for a few weeks are cashed when you do spend that “extra” money, you’ll soon be bouncing checks all over town. The reconciliation process helps provide a method of double-checking to avoid mistakes.

Following Up on Transactions

If a vendor complains about not receiving funds, it could be possible that a check was lost in the mail. When you are reconciling your bank statement every month, you can catch checks that have not cleared, and this will help you track down any potential missing payments. In addition, you can use your reconciliation statement to make sure your other company transactions are going through and have been calculated for the proper amount.

Keeping a Close Eye on Company Performance

When small business owners do not take the time to reconcile their bank statements personally, or at least see an overview of the results, they may be unaware of potential income issues or shortfalls. While delegating can help you manage your company better, you need to be able to see exactly what is going on within your company. Keeping an eye on bank statements can help you keep your finger on the pulse of your company and spot income fluctuations.

Loss Prevention

When bank statements are not monitored and reconciled, the potential for undetected loss is high. Not all employees or firms are honest, and you may not miss money that has been taken for some time. This is how some employees are able to embezzle thousands if not millions of dollars over time. Reconciling your bank statement helps you prevent losses and may indicate a potential problem in your system.