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The Importance of a Bank Reconciliation

Do you really know why you should reconcile your bank account?

What is a Bank Reconciliation?

A bank reconciliation is the process of matching transactions in your bank statement to your cash transactions in your financial system.  

Why do you need to perform a bank reconciliation?

Completing a bank reconciliation will allow you to report on and rectify/explain any differences between the two.

By ensuring each bank statement transaction has matching financial transactions in your financial system it will ensure:

·         Your bank account in your financial system matches as your bank statement balance

·         Errors in your bank statement are picked up and can be rectified including fraud allowing for controls to be put into place and ensure this does not reoccur

·         Bank transactions processed in error are picked up and resolved – e.g. duplicate payments, payments made by mistake

·         Supplier balances are reconciled

·         Customer balances are reconciled

·         All bank-initiated transactions are accounted for within your financial accounts – e.g. bank fees, interest received

·         Transactions not associated with invoices are accounted for within your financial accounts – e.g. cash payments such as entertainment and petrol

By ensuring your financials complete you may accurately report how well your business is doing including filing your GST and your End of Year financials.

How often should the bank reconciliation be completed?

The more regular the reconciliation, the more complete your cash accounting records.

If there is very little movement in a bank account, you may wish to consider the requirement for the account and possibly move the funds to more active bank account.  The reconciliation process may also help you decide on the bank account structure and whether you may need more bank accounts to help manage different areas of your business.

The Bank Reconciliation should be completed at a minimum before you file GST.

Your aged payables requirement will also determine the bank reconciliation target date.  For example, if you pay weekly you will need to reconcile weekly in order to produce an accurate Aged Payables report.

The Bank Reconciliation is one of the most important financial processes when managing a business and the more efficient the process the better.  Financial systems such as Xero help automate the matching of bank statement to system and cash transactions.  These systems memorise prior matching to auto-suggest and also provide functionality to set up matching rules.

The bank reconciliation is the final step in all financial processes to check all cash transaction are complete within your financial system.