Doing bank reconciliations can be one of the most important things that an entrepreneur does according to Edmonton bookkeeping. Especially since one of the most common reasons why Canadian entrepreneurs fail. Is because they ran out of money in their business.
While there may be several reasons why entrepreneurs run out of money. Spending money without understanding their finances is a large country bidding factor.
And since 29% of all entrepreneurs fail because they ran out of money. Learning how to make financial decisions. Based on how much money they actually have in their business to spend. Can significantly help entrepreneurs avoid this obstacle.
Many business owners believe that they should be able to look at their bank account balance. In order to understand how much money they have in their business. And while their bank statement will show exactly how much money they have in that moment.
What it will not take into consideration are any pending transactions. Such as if they have written checks that have not been cashed. If they have any electronic fund transfers pending. And it also fails to take into consideration any transactions coming into their bank as well.
And while it may be possible for entrepreneurs to be able to look at their bank statement early on in their business. And know how much money they have to spend. The more transactions a business owner does, and the busier they get. Makes it more difficult to keep track of how much money they should have to use in their business.
Instead, Edmonton bookkeeping suggests entrepreneurs look at their financial statements as well. This includes an entrepreneurs income statement, their balance sheet and their bank reconciliation.
Looking at this information together will ensure that entrepreneurs will know exactly how much money they have in their business to spend. After taking into consideration not just the pending transactions into their bank account. But also looking at how much debt an entrepreneur already has. And if they can afford to spend money.
Entrepreneurs should get into the habit of doing this before they make any financial decisions in their business. From running payroll and paying bills, to paying entrepreneurs dividends, and making purchases.
The sooner a business owner can get into this habit. The more chances the entrepreneur has at spending their money responsibly. And it is important that they do this early on in their business.
Since 15% of all entrepreneurs fail in their first year, and 30% fail in their second year of owning a business. Making it extremely important for entrepreneurs to do this sooner in their business rather than later.
However, Edmonton bookkeeping says many entrepreneurs do not know what a bank reconciliation is, or how to do one. Which can make it very challenging to expect this of entrepreneurs early on in their business.
Therefore, entrepreneurs who are just starting out should sit down with their bookkeeper or accountant. And understand what an income statement and balance sheet is, and how do a bank reconciliation. So that they can make the most informed financial decisions early on in their business.
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One of the most important tasks that an entrepreneur can learn early on in their business says Edmonton bookkeeping. Is how to do a bank reconciliation. It is extremely important, because this is going to help an entrepreneur understand how much money they have in their business to utilize. Which can help business owners avoid spending money they do not have.
Since half of all entrepreneurs eventually fail, and the second most common reason why is because they run out of money. The sooner business owners can learn how to do a bank reconciliation. The sooner they will be able to avoid spending money they do not have. And avoid running out of money in their business.
The first thing that entrepreneurs need to understand is the purpose of a bank reconciliation is to understand all uncleared transactions. When entrepreneurs are going to do a bank reconciliation, the first step is to pull the last bank reconciliation that was done. And there current bank statement.
An entrepreneur is going to look at the starting bank balance. To ensure that it matches the statement balance of the bank reconciliation. These two totals must match each other.
And the reason why says Edmonton bookkeeping. Is because that way, the entrepreneur will know that they are starting the bank reconciliation without any errors.
If the bank reconciliation and the bank statement do not match. The likely error, was that an entrepreneur has entered a transaction for a future date, that has been marked clear.
An example of this says Edmonton bookkeeping. Is if an entrepreneur is reconciling the month of February. But have a March 5 transaction that has been booked is clear.
All they have to do is go into their accounting software. And fix that transaction. To bring the bank reconciliation and bank balance back into alignment.
The next thing that an entrepreneur must do in order to ensure that their bank reconciliation is done correctly. Is look at all of the transactions that have already cleared their bank statement, and check them off their bank reconciliation.
This way, what they will be left with, or all of the transactions that have not cleared yet. The reason why transactions may not have cleared, could be that it is a check for example that has not been cashed. Or a bank deposit that has not yet made it onto the bank statement.
However, the first thing that an entrepreneur must do is pay attention to the date that these have not been cleared. Because if they have been not cleared for certain period of time. They are most likely errors.
Typical errors could be that entrepreneurs entered the transaction twice. Or potentially entered the incorrect amount. So an entrepreneur should look at those entries into their accounting software. To see if they are errors. Which they can fix, and ensure that there bank reconciliation is more accurate.
The sooner entrepreneurs can learn how to do this. The sooner they will not only be able to fix mistakes in their accounting software. But the sooner they will be able to understand how much money they have to spend in their business.