Why You Should Pay Attention to Bank Reconciliation

With a constant cashflow coming in and out of your business, it’s important to make sure that your bank balance matches your book balance. The tedious, but necessary, process is called bank reconciliation, or bank rec for short. Performing a bank reconciliation is a lot like balancing a checkbook, and you do it for the same reason. You want to make sure that the information you have matches the bank and you know how much cash is available in your account.

Discrepancies between the accounts usually occur for two reasons: time lag and errors. Time lags are the most common cause of inconsistencies between the accounts. A time lag is something that prevents one of the records from recording the transaction in the same period. Making a deposit after bank hours and the time lapse between a check is written and the date the bank posts the check are both considered time lags. Errors can also cause your records to not match up with the bank’s records. Errors are less common than time lags, but can still occur. Reconciling your accounts helps to determine if the discrepancy is due to time lag or error.

If your business write hundreds of checks a month, doing a bank rec can be time consuming but it’s worth the hassle. The main benefit of bank rec is knowing that the amount of cash reported by your company is consistent with the amount of cash being recorded by your bank. Regular bank rec also helps you find inaccuracies in your accounts and quickly

Monthly bank reconciliation helps you clear up any problems between your records and the banks records. Next week we’ll go over the bank reconciliation procedure.

With a constant stream of cash coming in and out of your business, it’s important to make sure that your bank balance matches your book balance. The tedious, but necessary, process is called bank reconciliation, or bank rec for short. Performing a bank rec is a lot like balancing a checkbook. You want to make sure that the information you have matches the bank and you know how much cash is available in your account.

Discrepancies between the accounts usually occur for two reasons: time lag and errors. Time lags are the most common cause of inconsistencies between the accounts. A time lag is something that prevents one of the records from recording the transaction in the same period. Making a deposit after bank hours and the time lapse between a check is written and the date the bank posts the check are both considered time lags. Errors can also cause your records to not match up with the bank’s records. Errors are less common than time lags, but can still occur. Reconciling your accounts helps to determine if the discrepancy is due to time lag or error.

If your business write hundreds of checks a month, doing a bank rec can be time consuming but it’s worth the hassle. The main benefit of bank reconciliation is knowing that the amount of cash reported by your company is consistent with the amount of cash being recorded by your bank. Regular bank rec also helps you find inaccuracies in your accounts and quickly.

Monthly bank reconciliation helps you clear up any problems between your records and the banks records. Next week we’ll go over the bank reconciliation procedure.

About the author: Antony Firth