When business owners can consistently use bank reconciliations in order to make financial decisions in their business, Edmonton bookkeeping says that they will ensure that they are spending their money responsibly. Industry Canada says that half of all entrepreneurs will fail within five years, and 29% of those entrepreneurs will say the reason they were not successful was that their business ran out of money. Helping entrepreneurs know how much money they have in their business at all times, and especially prior to spending money can help them significantly avoid this fate.
The first thing a business owner should learn in their business is what a bank reconciliation is. This is a financial statement that is going to show a business owner how much money they have to use in their business. If business owners believe that they can look at their bank statements, in order to make that determination, they might end up thinking they have more money than they actually have. For example, if a business owner rights five thousand dollars in checks, and looks at their bank statement before those checks are cleared, they might think that they have five thousand dollars or more to spend than they actually do. Bank reconciliation, on the other hand, takes all pending transactions into account and shows a business owner how much money they have to use once all of those transactions have cleared.
If a business owner gets into the habit of doing a bank reconciliation prior to making any payments, they can always see how much money they have to use in their business, regardless of what has cleared their bank account yet or not. This can help them ensure that they are not overspending, and if they do not have the money to make a payment or purchase, and they can either engage in some revenue-generating activities to bring the money in or do some collection calls to get paid on jobs that they are owed. Doing this prior to running payroll can help business owners ensure that they can pay their staff consistently.
Business owners also need to learn that not only do they need to do bank reconciliation, they need to do it carefully so that they can avoid making errors, and also take the time to review the statement to fix any errors that might exist. If a business owner is careless when running a bank reconciliation, or they do not review and fix any errors Edmonton bookkeeping says their bank reconciliation may look like they have more money to spend in their business than they actually do, causing this financial report to not serve the purpose it was designed for.
When business owners understand how important the bank reconciliation is, he can get into the habit of not only running the report regularly, but also being careful, so that they are not making errors, and that they are fixing any that might already exist. By getting into this habit early on, Edmonton bookkeeping says that they can end up avoiding the problem of spending more money than they actually have.
Edmonton Bookkeeping | How To Correct Mistakes On Bank Reconciliations
Learning how to fix mistakes on bank reconciliations is as important as learning to run them in the first place says Edmonton bookkeeping. The reason why is if business owners end up with accurate statements, it could cause them to make major financial mistakes or poor decisions in their business. Since 29% of all failed entrepreneurs say the reason their business failed was that they ran out of money, helping entrepreneurs avoid running out of money can significantly impact their ability to be successful.
It is important that business owners become very familiar with how their bank reconciliation report looks so that they can more easily catch mistakes. Mistakes quite often show up on the bank reconciliation as an uncleared transaction. If business owners assume that all uncleared transactions are simply waiting to get through the bank account, they may not only allow mistakes to persist, but those mistakes will cause their bank reconciliation to be inaccurate. By fixing these mistakes regularly, entrepreneurs can ensure that this financial statement is accurate, and they will be able to use that information confidently to make financial decisions.
What a business owner should look for when they are looking at the uncleared transactions, is how long that transaction has been uncleared for. The longer a transaction is waiting, the more suspect it will be. Especially if they are transactions from a bank card or a debit machine. These transactions should take just a couple of days, a week at most. Therefore, if business owners see more than one bank reconciliation where these charges exist, Edmonton bookkeeping says that this is where business owners should check for mistakes.
Two reasons why an uncleared transaction will appear by mistake on bank reconciliation, is either it has been entered in twice, or the date has been entered in incorrectly. By fixing one of those two mistakes, can clear the financial statement of that charge, correcting the overall total of the bank reconciliation. If these two items were not to blame for the uncleared charge, a business owner should verify that the transaction actually exists, and if it is a check, business owners should verify that the person who received the check actually got it, and to remind them to cash it before it becomes stale-dated.
Once an entrepreneur is familiar with their bank reconciliation, they are going to be able to much more easily identify uncleared charges that do not belong on the statement. By fixing these mistakes can help entrepreneurs end up with the financial statement that is accurate on a consistent basis. When they use that report to make a financial decision in their business, business owners will be able to ensure that they are making good and sound financial decisions for their business that is not going to put their business at risk of running out of money.