Before an entrepreneur learns how to do a bank reconciliation correctly says Edmonton bookkeeping. They need to understand why they should do one in the first place.
The reason why, is because it will help an entrepreneur understand how much money they have to utilize in their business. So that they can make more informed financial decisions in their business.
In fact, Edmonton bookkeeping says many business owners tend to think that all they need to do. In order to understand how much money they have to utilize in their business. Is simply look at their bank account statement, or bank balance.
However, this is not the best way to determine how much money a business owner has to use. And it can end up with them making mistakes. That could end up creating problems for the business owner. Or even forcing them to close their business.
The reason why, is because the bank statement or bank account balance. Will not show an entrepreneur how much money to utilize in their business. Once pending transactions such as checks, credit card transactions and electronic fund transfers have cleared.
A great example of this. Is when an entrepreneur looks at their bank statement. And sees that they have ten thousand dollars in their bank account. They may think that they have enough money to run their seven thousand dollar payroll.
But what the business owner did not take into consideration says Edmonton bookkeeping. Is that they have five thousand dollars worth of checks that they have written that have not yet cleared their bank account.
Therefore, if they run their payroll. They are either going to bounce their payroll will upset their employees. Or, because there checks to bounce. Incurring penalties, and getting in hot water with their suppliers.
However, this is completely avoidable if business owners look at their bank reconciliation reports. Because this is a report that takes an entrepreneurs bank account. And takes into consider what transactions have cleared, and which ones have not cleared.
Which will show a business owner exactly how much money is left. And that is the amount of money that they can use in their business. Therefore doing a bank reconciliation is extremely important.
And learning how to do a bank reconciliation without mistakes. Can help entrepreneurs spend money more responsibly. So that they can avoid running out of money in their business. And also learn how to be proactive in their business finances.
For example, not only will a business owner be able to use a bank reconciliation. In order to decide that they do not have enough money to run payroll, or make bill payments for example.
However, a business owner can also use that information. To see that they need to increase their marketing efforts. Such as increase their online marketing spend. Or that they need to do more sales calls or cold calls. In order to bring more customers into their business.
By using the information in a bank reconciliation. Can help business owners significantly. And the sooner they know how to do this. The sooner they can avoid making mistakes that could potentially cost them their business.
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It is very important for business owners to learn how to do bank reconciliations says Edmonton bookkeeping. Because this is a tool that will help them be more financially responsible in their business.
In fact, while 15% of business owners fail in their first year of opening their small business in Canada. And 30% fail in their second year of business ownership. Ultimately, half of all entrepreneurs in Canada will fail.
And there are only few reasons why this happens. The second most common reason why business owners fail. Is because they simply ran out of money in their business.
However, this is entirely avoidable says Edmonton bookkeeping. Especially if entrepreneurs learn how to do a bank reconciliation. They can avoid spending money they do not have. And can avoid running out of money in their business.
They will also be able to be proactive, and see that they are not generating enough money to pay all of their expenses. And that when they see this on a regular basis. They know that they need to generate more sales and attract more customers.
So they can use this information in order to increase how much money they are spending online, or if they are going to engage in more revenue-generating activities.
How to do a bank reconciliation properly says Edmonton bookkeeping. Is to take their bank statement and their previous bank reconciliation.
The next thing that they will do is take a look at what transactions have already cleared their bank account. Such as checks that they have sent, deposits that they have made in an ATM. Or debit and credit transactions.
And what they will be left with. Is all of the uncleared transactions. Is important that business owners take that list, and verify that those transactions are real, and not a mistake.
The best way to determine this. Is if entrepreneurs look at the date on how long these transactions have been pending for. Some transactions will take longer than others.
And by understanding approximately how long each transaction should take to clear. Can help an entrepreneur understand if transactions that are waiting to clear are mistakes or not.
Checks are going to be some of the longer transactions to clear. Because they typically get mailed out, and then depend on the person who receives the checks to put it in the bank account.
While things like deposits into an ATM, as well as debit and credit transactions, and transactions from a point-of-sale machine. Might take one or two days to a week at the most.
When any transaction has been pending for longer than it should take to clear. Business owners should go into their accounting software. To see if they accidentally entered in the transaction twice.
Or entered it in the incorrect amount. Which would cause it to show as pending when it is not. By fixing these errors. An entrepreneur will be left with an accurate bank reconciliation.
And be able to know exactly how much money they have to utilize in their business. So the next decisions they make be the best ones for their business.