Monday, 23 Jan 2023
Bank reconciliation is an indispensable part of bookkeeping. It is needed to ensure accuracy and maintain up-to-date financial records. Professionals rely on this process to ascertain that all the transactions are verified, and the money has been credited into the business bank account.
It also helps confirm all the payments made by the business in Melbourne and gives error-free data on withdrawals and deposits. Bank reconciliation involves matching the accounting records with the bank statement of the business.
If the bookkeeper finds any inconsistency, they make the necessary changes in the books to maintain correctness. So, let us help you understand the meaning of bank reconciliations, their importance and how it is done. The guide will make the process easy and effective for the smooth functioning of the accounting department.
Bank reconciliation is a regularly performed activity that compares the bookkeeping records of a company with its bank statements for a fixed period. It ensures that the business in Melbourne knows where its money has gone and from where it has been earned without any missing amount.
The frequency of bank reconciliation depends on the size of the business and the number of transactions taking place in a day. For example, retail businesses must record hundreds of transactions daily, so they need to perform bank reconciliation daily.
Traditionally, expert bookkeeper Melbourne completed the task manually, which was time-consuming and tiring. However, with the advent of accounting software, it has become automated and highly precise.
Small and large businesses require bank reconciliation in Melbourne for various reasons. Let us understand why it is considered a significant part of bookkeeping.
Bank reconciliation is instrumental in determining a clear picture of the business’s financials. When the records have been matched and corrected, the business owner knows the amount available for investments.
They also know the approximate expenses and how much they need to save to create significant cash reserves. Since there are no errors, the business owner cannot make financial mistakes or miscalculations. It is also vital for accurate tax reporting to avoid penalties from the ATO in Melbourne and to curtail losses in the process.
If the business in Melbourne allows customers to pay for their products long after they made the purchase, bank reconciliation helps identify the correct amount of receivables. Mostly, payment is due within a month or up to three months.
It is allowed to retain customers and offer them flexible payment options. Thus, bookkeepers have to track accounts receivables outstanding, which happens through bank statements.
Bookkeeping companies in Melbourne rely on bank reconciliation to identify fraudulent transactions in the accounting books. The common tactics used by deceiving employees include issuing duplicate cheques or making unauthorised withdrawals, etc. They also check for missing deposits or incorrect recordings or amounts in the books.
Some vendors are also involved in deceitful activities wherein they may change the amount on the cheque received from the bank to withdraw a higher amount. The bookkeeper can easily detect the scam and help the business eliminate the swindler.
Since the bookkeepers are looking at the money going out of the business and coming into it through the statements, they can manage a positive cash flow. If the business loses money, the bookkeeper will implement cost-cutting measures to revive its profitability. Alternately, if they identify high revenue generation, they will improve the tasks generating high margins to boost income.
Banks provide bank statements to the account holder, which include a sequential list of deposits and credits along with the date of the transaction. Bookkeepers need the statements of the past months and the current month to get started. They use the closing balance of last month as their starting amount.
The next step is verifying that all the deposits and withdrawals mentioned in the bank statement are in the company records. If there are any missing entries, the bookkeeper needs to add them. Both documents must be compared, and if there are any differences, the reasons for the same need to be identified.
It could be because of an uncleared cheque or a cash payment made to the vendor in Melbourne. Sometimes the bank statements also need to be adjusted if they fail to show outstanding cheque entries or the deposit is still in transit because of the huge amount.
So, the bookkeeper has to validate every movement of cash and online payments to confirm the correct numbers and records. After all the corrections and adjustments, the end balances on the two documents must match. If the numbers differ, the bookkeeper needs to look through the data again to identify the inconsistency.
Business owners and bookkeepers understand the importance of bank reconciliation. It is the tool that keeps the accounts up-to-date and correct through data entry validation. Thus, it is vital to know the process in detail for aspiring entrepreneurs and bookkeeping enthusiasts.
