Bank Reconciliations

The bank account reconciliation is used to compare the bank balance of a financial account with the accounting records (i.e., book balance) at any given point in time. Do you reconcile the bank accounts of your small business on a regular basis?

It is normal for a business’ bank account per its accounting records to differ from the balance reported on a bank statement. Certain transactions recorded by a business are not posted or updated by the bank’s accounting system until after a time lag (e.g., outstanding checks or deposits, debit card charges, etc.). Similarly, some transactions are accounted for in the bank’s accounting system before the business enters them into its own accounting system (e.g., service charges, wire transfer fees, etc.). The purpose of the bank account reconciliation is to detect the discrepancies between the accounting records and the transactions posted to the bank account, and to make any needed corrections.

The bank reconciliation is one of the most important accounting controls in any business, large or small. Since most transactions of businesses run through a cash account, it is critical that this account is monitored at least monthly. The regular monthly bank reconciliation provides the following controls for a business:

  • Means to identify errors in either the accounting records or the banks records;
  • Mechanism to uncover irregularities (e.g., unauthorized bank withdrawals, fraudulent vendors, etc.);
  • Procedure to ensure that all proper business transactions have been recorded in the accounting records; and
  • Method of monitoring cash flows.

If a business has multiple employees involved in the cash process, their duties need to be segregated so employees responsible for authorizing and recording accounting transactions are not preparing and reviewing the bank reconciliations.

The experienced professionals at Flexible Accounting Services of the Triangle can setup or redesign accounting controls and processes that are suited for the size, staffing and financial experience of your small business. Contact us today!