It is extremely important that entrepreneurs know how to do a bank reconciliation properly because it could put them at risk of running out of money says Edmonton bookkeeping. Since 50% of entrepreneurs fail, and 29% of those failed entrepreneurs say the reason why they were not successful is that they ran out of money, this is a huge problem for many entrepreneurs. By being able to make the best financial decisions possible, that will cause entrepreneurs to run out of money is extremely important. Doing correct bank reconciliations can significantly impact the ability of entrepreneurs to make good financial decisions in their business.
What a bank reconciliation is, is when an entrepreneur calculates the registered balance against their balance sheet to verify that the balance sheet and income statements are correct. By doing that, a business owner will know exactly how much money they have in their business to use. If entrepreneurs have an in properly done bank reconciliation or do not do it all and look at their bank balance in order to make financial decisions, they often end up spending more money than they actually have.
The reason why a business owner is not able to look at their bank balance in order to understand how much money they have to use is that there may be transactions that are waiting to clear. Edmonton bookkeeping says that if an entrepreneur has sent out checks to suppliers, and those checks have not cleared yet, a bank balance will end up showing a business owner has more money in their bank than they can actually use. Once those checks clear, the bank balance will decrease.
Other transactions that might cause an entrepreneur to not understand exactly how much money they have in their bank by looking at their bank balance are credit card transactions, and transactions made at a bank machine. These may take a few days to clear, and if a business owner in the meantime looks at their bank balance in order to make a financial decision, the amount showing on their balance will not show accurately how much money a business owner has to use. Edmonton bookkeeping says that if an entrepreneur makes a payment or purchase, it could cause the uncleared transactions to bounce.
Because of how important it is that bank reconciliation is done, entrepreneurs need to learn either how to do a bank reconciliation properly to avoid mistakes, or to hire an Edmonton bookkeeping company to do it for them, so that they can end up with the most accurate financial information.
When entrepreneurs understand what a bank reconciliation is, and why they would need to do when in their business, they will be more prepared to spend time learning how to do in properly so that an entrepreneur can make informed financial decisions in their business. It is good practice for entrepreneurs to do bank reconciliations before they make any financial decision in their business whether it is big or small. Running payroll, paying bills, and purchases are some examples of when an entrepreneur would want to do a bank reconciliation.
Edmonton Bookkeeping | Bank Reconciliations
If business owners are utilizing financial statements to make financial decisions, Edmonton bookkeeping says that if mistakes have been made on the financial statements, an entrepreneur might be making big mistakes when it comes to their finances and not even know it. There are many reasons why a bank reconciliation may contain errors. If entrepreneurs understand what those errors are, they can learn how to avoid them so that they can end up with a bank reconciliation accurate enough to make all of their financial decisions.
The first thing those business owners should do to ensure that they are going to end up with accurate bank reconciliation is to check the statement balance first. If the checking statement balance does not match, then the bank reconciliation will not work properly, and no matter how accurately the rest of the information is entered, an entrepreneur will end up with an incorrect and inaccurate statement.
Another thing that an entrepreneur should be aware of what they are learning how to do a bank reconciliation properly, is what it means to have uncleared charges. Uncleared charges refer to transactions that have been posted but have not cleared through the bank yet. For example, if an entrepreneur sends out a check to a vendor, that they have not cashed yet, that could show up as an uncleared charge. Also, if for example, an entrepreneur has deposited a check that they received into a bank machine, it will show up on their bank reconciliation, but not in their bank balance yet.
The reason why it is important that entrepreneurs are aware of uncleared charges is that if these uncleared charges show up on their bank reconciliation for more than one month, it is usually because there is an error. Entering the information in twice, or entering in the wrong date common reasons why they might show as uncleared charges. It is important that a business owner fixes these mistakes as soon as they are caught says Edmonton bookkeeping, because they can often make the bank reconciliation look like an entrepreneur has more money to use than they actually do.
Another reason why business owners should be aware of uncleared charges because if a check is uncleared for more than six months, it becomes stale-dated and it cannot be cashed by the person who received it. Therefore, entrepreneurs should be aware of all checks that remain uncashed and remind the person to put them into their bank so they get their money.
Doing a proper bank reconciliation is an extremely important tool to help entrepreneurs understand exactly how much money they have to use in their business. This will help them make informed financial decisions so that they can avoid spending more money than they actually have in their business. Edmonton bookkeeping says that by doing this, many entrepreneurs can avoid running out of money in their business.