If business owners are looking at their bank account balance in order to make financial decisions, Edmonton bookkeeping says mistakes will be made. Because bank account balances do not show an entrepreneur how much money they have to use.
Instead, what a bank balance will show entrepreneur is exactly how much money is in their bank account at that given moment. Without taking any outgoing or incoming transactions into account.
Especially if an entrepreneur starts getting busier and busier. They might have more transactions both in and out of their bank account. And the size of those transactions might also be much larger.
Therefore, it is very important that business owners understand the danger associated with looking at their bank account. In order to make financial decisions.
So that they can learn how to do a bank reconciliation with their Edmonton bookkeeping company. So that they can make more informed financial decisions in their business.
A great example of this, is when an entrepreneur looks at their bank balance, and sees that there is twenty thousand dollars in their bank account. And make the assumption that they can spend that money.
They might have payroll worth seven thousand dollars waiting to come out, as well as five thousand dollars in checks that are waiting to clear.
Therefore, a business owner needs to understand that they only have eight thousand dollars to spend instead of twenty thousand dollars. But they might not know that simply by looking at their bank statement alone.
This is where a bank reconciliation comes in handy. Because it shows an entrepreneur how much money they have. Once all of the pending transactions have been taken into consideration.
In order to the bank reconciliation. Business owner will take their most current bank statement. And subtract all of the transactions that they have made that have already cleared their bank account.
They can get this information by looking at their accounting software. And by the end. They will be left with a list of transactions are pending and have not cleared the bank account yet.
The next thing that a business owner must do is verify the accuracy of those pending transactions. If they are mistakes such as a duplicate entry. Or an incorrect amount on entry.
This can make it look like it is uncleared transaction. When it should be fixed and deleted from the system completely.
Therefore, any time an entrepreneur ends up with the list of pending transactions that have not cleared. They should ask themselves why they are still pending says Edmonton bookkeeping.
While there will be a certain amount of pending transactions at any given time. Fixing the ones that are wrong. Will ensure that business owners will have only correct transactions pending.
Therefore, when they look at how much money on the bottom of their bank reconciliation total. That is all the money that they can use. Which will allow them to spend that money confidently in their business.
Wondering how you’ll be able to a quire more Edmonton Bookkeeping help?
One of the most important things that an entrepreneur can do says Edmonton bookkeeping. Is learn how to do a bank reconciliation. The reason why, is because it can help entrepreneurs spend money responsibly.
In fact, business owners are failing in business quickly according to industry Canada. With 15% of entrepreneurs failing within the first year of opening their small business in this country.
30% of entrepreneurs will fail in their second year of business. While 50% of business owners that start a business. Will fail within five years of opening the doors to their business.
And the second most common reason why business owners will fail. Is the fact that they will run out of money in their business.
While there is going to be a lot of different ways that business owners end up running out of money in their business. Learning how to spend money responsibly will help them avoid that fate.
This is where they should learn how to do a bank reconciliation with their Edmonton bookkeeping company. A bank reconciliation will show an entrepreneur exactly how much money they have to utilize in their business.
After all of the transactions that they have scheduled have cleared their bank account. This will take into account all of the transactions that are outgoing. As well as transactions that are incoming as well.
They also need to take into consideration the length of time that it will take things to clear their bank account. So that they can learn which ones are most likely errors when they look at their bank reconciliation.
For example, while electronic fund transfers will take a very short amount of time to clear. Checks on the other hand can take several weeks if not longer. Depending on many different circumstances.
By understanding how long each transaction would take to clear their bank account. Business owners can end up troubleshooting their bank reconciliation. And figuring out which ones are likely mistakes.
The reason why this is so important. Is because if there are uncleared transactions that are fictitious. Edmonton bookkeeping says that it will misrepresent how much money not nor has to use. Which can lead to them making poor financial decisions. And not even realize it.
If they have uncleared transactions that are incoming to their business that are mistakes. It will make the bank reconciliation look as though the entrepreneur has more money to use in their business than they actually do.
On the other hand, if they have uncleared transactions that are outgoing that are mistakes. It will make the bank reconciliation look as though the business owner has less money than they actually do.
This is why it is crucial for business owners to learn how to not only do a bank reconciliation says Edmonton bookkeeping. But fix mistakes as well. So that they know that the bank reconciliation can be counted on.
Whether an entrepreneur is running payroll, paying bills, paying themselves or purchasing an asset. They need to look at their bank reconciliation prior to any of those transactions.
And do so every single time. So that they can avoid making poor financial decisions, that puts their business at risk.