A bank reconciliation is an extremely important tool for entrepreneurs to learn how to use says Edmonton bookkeeping. Because this can help business owners understand how much money they have to spend in their business.
Many business owners start off as new entrepreneurs. Thinking that they can see how much money is in their business. By looking at their bank account. And while this might work when they are small. It is not an effective way for entrepreneurs to see what the financial situation of their business is.
The reason why says Edmonton bookkeeping. Is because if entrepreneurs have payments that are pending. Such as electronic fund transfers that they have scheduled. Or checks that they have written and mailed out.
Their bank balance is not going to show how much money they have to use. But how much money they have currently in their business. Once those payments clear. They will have less money. So doing a bank reconciliation. Can help entrepreneurs understand how much money is free for them to use.
Business owners need to check their statement balance first when they are doing a bank reconciliation. And a against the balance of their previous bank reconciliation. What this does says Edmonton bookkeeping. Is ensures that all previous transactions were accounted for.
What this also does, is ensures that there are no obvious errors that are existing before an entrepreneur starts. If they start to do a bank reconciliation without checking their statement balance first.
There might be glaring errors. That no matter how accurately the rest of the bank reconciliations done. Will result in mistakes on the final balance.
A business owner needs to ensure that all transactions are booked in the accounting data file. So that all an entrepreneur has to do during the bank reconciliation. Is match the transactions that have been booked in the data file against the bank statement. In order to see which ones have cleared.
Once they have looked at all of the cleared transactions. They need to start looking at the uncleared transactions that. Looking at least statements, an entrepreneur needs to ask themselves if these are legitimate transactions.
Quite often, uncleared transactions are actually mistakes. That can be fixed very easily. As long as an entrepreneur is looking at each uncleared transaction in order to determine this.
One of the first things that entrepreneurs should be doing when looking at uncleared transactions. Is how long they have been uncleared for. For example, if it is an electronic transaction. These should never be outstanding. Because by virtue of the electronic transaction. Those should clear immediately.
If it is a check that is an uncleared transaction. If it has been outstanding for longer than six months. It is an error. Simply because checks that are older than six months become void. And these stale dated checks, no matter if they are a mistake or not. Can a longer be cashed, and should be fixed.
When entrepreneurs understand how important bank reconciliations are. They can learn how to do these, so that they can ensure they are verifying how much money they have to utilize in their business on a regular basis.
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There are many things that entrepreneurs must learn how to do very quickly when they first open their business says Edmonton bookkeeping. And learning how to do a bank reconciliation is one of those things.
The reason why, is because a bank reconciliation is how an entrepreneur will be able to understand how much money they have in their business. That is free for them to spend, such as if they have enough money to run payroll, pay bills or even pay themselves or purchase assets.
This is so important to be able to understand how much money an entrepreneur has to use in their business. And business owners need to realize, that the second most common reason why entrepreneurs in Canada fail. Is because they ran out of money.
29% of all failed entrepreneurs in this country and up running out of money. And one thing that can help entrepreneurs avoid this obstacle. Is learning how to do a bank reconciliation. So that they know how much money they have in their business.
Using this information, business owner can decide if they have money to do things like run payroll. And purchase assets that they need in their business. Or, if they find that they do not have the money to make those decisions.
They can use that information to understand if they need to raise prices, engage in more revenue-generating activities such as increased sales and marketing. Or if they need to spend time on collection calls. To bring the money that they are owed into their business.
Another important reason why business owners should do bank reconciliations says Edmonton bookkeeping. Is because it can help ensure that their accounting software is accurate. Because there able to catch mistakes easily this way.
One of the ways that entrepreneurs do bank reconciliations. Our to look at all of the uncleared transactions. In order to determine if these are actual transactions. Or if they are stakes that need to be fixed.
One of the first things that entrepreneurs should check for. When they see that there is a transaction that is outstanding. Is looking to see if this is a duplicate entry into their accounting software says Edmonton bookkeeping.
If any transactions were booked twice. When that transaction actually clears their bank account. It will take care of the one correct entry. Leaving the duplicate entry to look like it is an uncleared balance.
By verifying any uncleared transactions are not actually duplicate. Can help entrepreneurs catch errors that might exist in their accounting software. That might end up making the rest of their accounting wrong, or in need of fixing.
The next thing that entrepreneurs should take into consideration. Is that most pending transactions should only take a few days to clear. Checks are one of the only exceptions to this rule. Because it depends on when person who receives the check puts it into the bank.
But for debit, or credit card transactions. They quickly should only be outstanding for anywhere between 1 to 7 days. So if entrepreneurs say that they are outstanding longer than that. This is typically a mistake as well.
When entrepreneurs learn how to do bank reconciliations. Not only will they understand how much money they have to use in their business. They will also be able to fix mistakes in their accounting software. And have a more accurate representation of how much money is in their business.