When the most important financial statements for an entrepreneur to have prior to making any financial decisions in their business says Edmonton bookkeeping is the bank reconciliation. The reason why, is because this financial statement will show entrepreneurs how much money they have in their business. If business owners think that they can get the same information simply by looking at their current bank balance, they may not take into consideration all of the uncleared transactions that need to happen, which will end up with them making errors in their financial spending.
When a bank reconciliation is, is ensuring an entrepreneur how much money they have in their business, after all, transactions both into and out of their business that is pending have taken place. Edmonton bookkeeping says that means if an entrepreneur has written several checks, and only a few of them have cleared, the bank reconciliation will show the entrepreneur how much money they have to use once all of those transactions have been cashed. If entrepreneurs are making financial decisions either without looking at this or looking at their bank balance instead, there is a very good chance that they will end up spending more money than they have, causing payments to bounce.
When entrepreneurs learning how to do their own bank reconciliation, they should understand what the difference is between a registered balance and a statement balance. The statement balance is the balance that is going to match the bank statement, and the registered balance is going to match the last reconciled amount. The reason entrepreneurs need to know this is because checking the statement balance is the first place they need to start in the process. If it does not match the ending balance of the previous statement, the bank reconciliation will not work out, ending up with a financial statement full of mistakes.
After an entrepreneur has entered all of the information into their bank reconciliation, they are going to end up with the beginning balance, all cleared transactions, incoming deposits, ending balances, the uncleared balance, and the registered balance. This will show entrepreneurs how much money they have to use in their business, whether they are running payroll, purchasing assets, or paying vendors. No matter how big the financial transaction is, Edmonton bookkeeping says that when business owners consult this sheet to before making any financial decisions in their business, they can be confident that they have the money to be able to make that decision.
Not only do entrepreneurs need to do a bank reconciliation before every financial transaction, but they also need to ensure that they are being diligent, and thorough in checking for errors. If an entrepreneur uses these financial statements to make financial decisions, but it is the will of mistakes, they will be putting their business in the same amount of risk that they would if they failed to check their bank reconciliation at all. If an entrepreneur is not able to do this accurately or fix mistakes, they should instead hire Edmonton bookkeeping companies such as always bookkeeping, will be able to help entrepreneurs ensure that they have up-to-date and accurate bank reconciliations any time they need for their business.
Edmonton Bookkeeping | Fixing Errors On Frontal Statements
Many business owners understand how important accurate bank reconciliations are for their business says Edmonton bookkeeping. However, they may not be aware of how uncleared charges might actually be errors that they need to fix. There are several things that business owners need to keep in mind when checking their bank reconciliations for accuracy, to minimize errors so that they end up with the most accurate statements possible.
One of the most common errors that business owners make when they are doing their own bank reconciliation statements, is leaving uncleared transactions in the statement. Edmonton bookkeeping says they see this about 50% of the time, with business owners it leaving uncleared transactions that are actual errors. This is either due to an entrepreneur not understanding that it is an error, or being unclear or uncertain how to clear those transactions. By leaving uncleared transactions on bank reconciliation, an entrepreneur either ends up with a report that shows that they have more money than they do, or that they owe more money than they do. Both can cause entrepreneurs to make stakes in their spending.
Business owners need to understand what an uncleared transaction is, in order to be clear on when to check them for errors. For example, checks that are waiting to be cashed can show up on the reports, because entrepreneurs have sent them out, and entered into the bookkeeping software that they have made the payment, but it has not been cashed so it does not show up in their bank account as be cashed. Uncashed checks might take the longest out of all the transactions to clear, because it depends on when those checks are received, and then when they go to the bank to cash it. Bank card transactions, on the other hand, might take one or two days to clear, and credit card transactions may take 2 to 5 days.
Understanding how long it takes things to clear can help entrepreneurs understand if they see them outstanding on a bank reconciliation for longer than that, that is a cue for them to check to see if it is a mistake or not. Common mistakes could be entering the transaction twice, or entering the incorrect date. Edmonton bookkeeping says that when entrepreneurs notice transactions taking longer than normal to clear, by fixing those errors can have them be taken off bank reconciliation.
If entrepreneurs see electronic transactions such as E transfers being shown as uncleared, that is a very clear indication that is an error. The reason why, is because electronic transactions happen immediately, and should never show up on the bank reconciliation report as being outstanding.
When entrepreneurs learn what to look for when checking their bank reconciliation for errors, it can become far easier for them to troubleshoot, and fix mistakes so that they end up with the most accurate financial statements possible. When they understand how important it is to have accurate statements to make financial decisions with, it can help entrepreneurs do their due diligence and verify the accuracy of their reports so that they do not put their business in jeopardy.