You may have heard about monthly account reconciliations but do you know enough about the procedure? If you think your answer is yes, then think twice.
Every business seems to be skeptical about reconciliation. Some businesses think that they do not need to reconcile their books of accounts every month, let alone every week. However, is this statement actually true, should a business “skip” reconciliation altogether to save time and effort? The short answer to this is “no”.
With the help of this article. We will understand what is accounting reconciliation or business reconciliation. Additionally, the blog will throw some insight into the benefits of reconciliation for any business. So, let’s have a look at the definition of the concept and move on to why is reconciliation important.
What is Accounting Reconciliation?
Monthly account reconciliations or the process of reconciliation is associated with the procedure of cross-checking the internal financial records of a company with external sources of finance like bank statements, credit card statements, or any other financial institution involved with the business. The procedure is generally conducted by the ending of every month as the due date of the creation of such statements is also the same.
The Importance of Monthly Account Reconciliations for Any Business
Below are some of the major benefits that you can obtain with the help of Monthly Account Reconciliations or a business reconciliation. Have a look at all of these and then decide for yourself whether you should proceed further with the same or not.
Protects Commercial Deposits
You can have the opportunity to see an amount or deposit error that may appear due to the result of human negligence when you reconcile your accounts. Additionally, such humiliating situations, such as running out of cash while dealing with any other firm. May be avoided if the necessary attention is paid to the accounts and books & a correct method of monthly account reconciliations is carried out within the entire month.
Money-save is amongst the most eye-catching features that are always brought up since everyone seeks to adopt various practices that help them manage and save money, especially while operating a business.
You may not always be aware of all the various bank fees or taxes that are withheld from your account without your permission. We believe we have no choice but to pay them off because they are recognized as bank fees. However, it is crucial to be informed of the specifics of all such fees, which are possible through the process of the account reconciliation. It informs you of the specifics of additional tax deductions, which can be canceled if not required.
So, with the help of this procedure, you may also get some amount, back into your account.
Subtracting Bank Charges and Other Taxes
The vast majority of the time, problems with the balance sheet are caused by your bank fees and taxes. Hence, with the help of monthly account reconciliations, you can ensure that double-charing as well as other unnecessary charges are not deducted from your account and no unnecessary tax is levied on the firm.
Balance Issue Brought on by Deposit Amount
The likelihood of mismatched accounts grows if you don’t deposit a set amount each month. It is suggested that you can easily keep track of the deposit amount each month to prevent it and back reconciliation is the best solution for that.
Assistance in the Analysis of Fraudulent Transactions
A lack of care for your accounts may encourage your staff, sellers, or other account management partners to carry out undesirable or unlawful transactions. Your dependable staff may occasionally carry out personal transactions on your behalf and at your expense. Adopt monthly account reconciliations to prevent such situations.
If the bank statements and/or the balance sheets did not match, there may be additional causes for this that cannot always be attributed to the accounts department.
Meet All Tax Accounting Compliances
Ensure Your Books And Accounts Are Reliable And Right And Steer Clear Of Legal Consequences.
Easy Bill Payments
A company owner frequently forgets to pay his or her expenses at the end of the month due to his or her busy schedule. Business establishments typically opt for automated bill deductions from their accounts to get rid of this. Even while it could make their bill-paying procedure simpler, it might occasionally result in an overdraft or a missed payment.
The implementation of account reconciliation appears like a wonderful alternative in a wave of such instances. By doing this, you prevent your accounting department from overdrawing your accounts or defrauding you.
Safeguards from Accounting Omissions and Errors
The monthly account reconciliations procedure makes it simple to identify mistakes or errors made by your accounting department. It reveals the specifics of the accounts and, in the end, improves your ability to see your account book.
Pin Out Fraud and Omissions
When comparing every single transaction in the bank account, you should look for any indications of fraud as a top priority. For instance, were valid checks you issued copied or altered? Were checks written without permission? Have there been any unlawful withdrawals from the account? Are there any undeposited funds in the account?
Keeps Surprises At a Bay
Let’s say you give a vendor a check, and the seller keeps putting off paying it. Would you even be able to recall that it would be taken from your organization’s account? You can maintain track of every transaction if you simply reconcile the account once a month. even those who could be delayed.
Conclusion: Effects of Failing to Reconcile The Bank Statement
The effects of failing to reconcile the bank statement can be dire. The disparities amongst accounts and sums must be explained if there are any. By comparing the bank statements, you might see issues before they become major ones.
Most significantly, comparing the bank statements, or monthly account reconciliations enables you to detect fraud early on. It’s crucial to remember that normal users have more safeguards for their respective bank accounts under federal law than companies. Businesses cannot always rely on the financial institution or the bank that it will cover fraud or inaccuracies in your and their account, therefore it is crucial for them to identify any suspicious or fraudulent behavior as soon as possible.
So, it’s understandable that the importance of monthly account reconciliations is quite huge, undeniable, and unavoidable. It’s suggested that every business, small or large, dealing in any form of industry. Should conduct a thorough business reconciliation as and when necessary. If you want some assistance reconciling or want to outsource this procedure. Then you can Outsource Controller Services at The Ledger Labs.
Ask them everything you need to know about reconciliation. And get the reconciliation done for your books of accounts at economical rates. Contact us now to know more.