It is very important for entrepreneurs to do bank reconciliations properly says Edmonton bookkeeping. But it is also very important for entrepreneurs to understand why they should be doing a bank reconciliation in the first place.
This is going to be the tool that helps an entrepreneur understand how much money they have in their business to utilize. So that they do not and up making an error of spending more money than they have. And potentially running out of money in their business.
In fact, according to industry Canada, while 50% of all Canadian entrepreneurs will eventually fail. The second most common reason why entrepreneurs say they failed, is because they have run out of money.
Therefore it is extremely important for entrepreneurs to learn what they need to know to avoid running out of money. And spending money responsibly can help them accomplish that goal.
The first thing that entrepreneurs need to have in order to a bank reconciliation. Is their current bank statement. And their previous bank reconciliation.
The next thing that they are going to do, is look at the starting bank balance. To ensure that it matches the ending bank reconciliation balance. There are no errors to start with. And if the two totals do not match.
Edmonton bookkeeping says that the likely reason why. Is because an entrepreneur has posted a transaction for a future date as cleared. All they have to do is go back into their accounting software, and fix that mistake. And that usually will bring their bank balance in alignment with their previous bank reconciliation.
The next thing that entrepreneurs should do, is look at their cleared transactions. By looking at their posted transactions, and ensuring that they have come out of their bank account.
Can help an entrepreneur see how much money they have left in their bank account. Once all of those transactions have cleared. What they have left, is a list of all of the transactions that have not cleared yet.
The next thing that an entrepreneur should do, is ask themselves the question of why these transactions have not cleared yet. Some transactions will take longer to clear than others.
Such as checks, that are typically mailed out. And then will require the person who receives the check to deposit into a bank account in order for it to clear.
Because of this, it can take several days or even weeks for a check to clear bank account. And while it is best practices for people to deposit checks the day they receive them. If some people are not doing this, it can take even longer for the check to clear.
There are some transactions that should never appear as uncleared. Such as electronic transactions. Because these typically show up on the books as cleared. Because they have already made it through the bank account.
Therefore, entrepreneurs can look at their bank reconciliation says Edmonton bookkeeping. And figure out which ones are likely to be errors. That they can fix in order to have a more accurate bank reconciliation.
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The reason why Edmonton bookkeeping recommends entrepreneurs do bank reconciliations. Is so that they understand how much money they have in their business to use. While some business owners think that they can just look at their bank balance in order to understand that. Could end up making critical errors in their businesses finances.
The reason why, is because while the bank account will show an entrepreneur how much money they have in their bank at that exact moment. What will not show them, is how much money they have to use. Once all of the transactions that they have made have cleared.
There are many different transactions that could be pending at any given moment in an entrepreneurs business. That would tie up the funds that appear in a business owner’s bank account.
A business owner might have any number of checks that they have written within the last month. That are in various states of being sent. They could also be electronic fund transfers that an entrepreneur has scheduled. But have not cleared their bank account yet.
Even doing payroll, the entrepreneurs funds will be spoken for. Even if it has not been transferred from their bank account yet.
Therefore, if an entrepreneur looks at their bank account in order to make financial decisions. Such as paying themselves, purchasing assets or even paying bills. They may end up spending more money than they actually have. Which could cause pending transactions to bounce.
Because of this, it is a good idea for entrepreneurs to get into the habit of looking at their bank reconciliation on a regular basis. Because this will give an entrepreneur and amount of money that they have to utilize. Once all pending transactions have cleared their bank account.
The way that an entrepreneur should do their bank reconciliation says Edmonton bookkeeping. Is by looking at all of the transactions that have already cleared their bank account. Out of all of the ones that they have booked into their accounting software.
By checking off all of the cleared transactions. Not nor will have uncleared transactions left. What are typically uncleared to charges says Edmonton bookkeeping. Are checks that have not been cashed yet. But can include things like electronic fund transfers, credit card or debit transactions, and bank deposits.
It is very important that entrepreneurs look at how long these transactions have been uncleared for. Because some of the most common reasons why entrepreneurs would have uncleared charges, are because these are mistakes and the accounting software.
Therefore, one of the first things that an entrepreneur can do. Is look in their accounting software to see if these uncleared transactions are duplicate entries. Or entries that were made with the wrong total.
Duplicate entries are very common when entrepreneurs receive a paper invoice. But then also receive an electronic invoice as well. Therefore looking for mistakes. Can clear a lot of these uncleared transactions from their bank reconciliation.
There are several things that entrepreneurs can learn to help them ensure that their bank reconciliation is accurate. So that they can avoid spending more money than they have in their business.