Learning how to reconcile a bank account properly can significantly impact businesses says Edmonton bookkeeping. Industry Canada says that half of all entrepreneurs fail before their fifth year in business, and out of all of those failed entrepreneurs, 29% of them said that the reason why they failed is that they ran out of money. Business owners can significantly impact this issue in their business, by getting into the habit early on in their business ownership of learning how to reconcile their bank account before every time they make a payment or disburse money in their business.
The reason it is so important for entrepreneurs to do a bank reconciliation before dispersing any payments is that it can be a great tool for business owners to use to see how much money they have in their business. If business owners are only using their bank statements to see how much money they have in their business, they can end up overestimating how much money they have to use, use too much of its and trigger bounced payments. Edmonton bookkeeping says the reason why this happens, is because looking at a bank statement does not show all of the payments that are scheduled to come out. If a business owner has written several thousand dollars worth of checks and they have not cleared yet, their bank balance is not going to show those uncleared balances. However, bank reconciliation will show that and can show entrepreneurs exactly how much money they have to work with.
In order to do a bank reconciliation properly, entrepreneurs only need to have three things. They need to have the current bank statements, a record of all of the checks that they have written in the previous month, and the last bank reconciliation. The first place to start every single time is to compare the starting bank statement number with the ending of the last bank reconciliation. If the two numbers do not match up, a business owner should do the bank reconciliation for the previous month again. This is to verify the business owner is starting the bank reconciliation off in the right spot every single time.
Once a business owner has entered all of the transactions that the businesses had in that month including all of the checks, a business owner needs to verify that they have ended the bank reconciliation properly. The way they would do that says Edmonton bookkeeping, is to check to ensure that the ending balance matches the statements. If that is correct, the second thing they should look at is the registered balance. That number should match the GL for the bank on their balance sheet. If both numbers match together, the business owner has verified that the bank reconciliation is done properly.
Doing a bank reconciliation is not difficult says Edmonton bookkeeping, but doing it properly requires diligence as well as the care to do it regularly. Doing both of these things can significantly help entrepreneurs avoid running out of money in their business.
One of the most important habits for entrepreneurs to get into when it comes to reconciling their bank account says Edmonton bookkeeping, is ensuring that they are doing it consistently. Consistency is key when it comes to ensuring they have the right amount of money in their business to make financial decisions.
Business owners can use technology like they never have before in order to help ensure that they have accurate and up-to-date bank reconciliation reports. By utilizing QuickBooks online, and the ten bookkeeping says that they can link this program directly up to their business bank account and every time there is a transaction in their account, it updates QuickBooks online in real-time. While this can be an exceptional tool for entrepreneurs to use to help speed up their bank reconciliations, it should not replace the due care and diligence that business owners need to have when doing this activity. The time that they save by having it automated, they should spend a little bit of it to verify the accuracy of the information being uploaded to the software. Since technology is not infallible, it is important that business owners do that.
Some entrepreneurs may wonder why they should even bother automating if it is not error-free says Edmonton bookkeeping. However, even with the potential errors and the double-checking that they should use to verify its accuracy, the automated process can still be faster, easier as well as more accurate. By eliminating the element of human error, business owners can ensure that they are doing everything they can to maximize the accuracy of their bank reconciliation.
If they are not verifying the accuracy of their bank reconciliation report on a monthly basis, this can cause their year-end financials to be significantly incorrect. While their accountant will be able to go over this and fix the errors, it is going to take a significant amount more time, that they are going to have to pay the accounting hourly fees for instead of taking some extra minutes on a monthly basis to verify the accuracy of their bank reconciliations.
Not only should entrepreneurs be doing this every single month, they actually should be getting into the habit of doing this every time they disburse payments, whether it is payroll, vendor payments, or even taking money out of their corporation as dividends. In order to maximize the amount of time they have, business owners can schedule to run their bank reconciliation along with payroll, and then use the report to see how much money they have leftover in order to disburse payments to vendors. By getting into the habit of doing it this way, business owners can always verify they have the money to pay their employees, and that their vendors are being looked after on a regular basis.
Edmonton bookkeeping says that learning how to do this and developing the discipline to do it regularly can help entrepreneurs ensure that they will never run out of money in their business.