While it is critical for entrepreneurs to learn how to do bank reconciliations properly says Edmonton bookkeeping. Many business owners when they are new. Do not even know what a bank reconciliation is.
A bank reconciliation is a report that an entrepreneur can create. That takes all of the money that an entrepreneur currently has in their business. And subtracts all of the pending transactions from it.
So that an entrepreneur knows how much money they have to use in their business. Once all of the payments that they have made. And payments that are pending’s come in. Have cleared their bank account.
The reason why this report is so important says Edmonton bookkeeping. Is because it allows an entrepreneur to make informed financial decisions. Because they need to know if they have the money in order to allow them to do what they need to in their business.
Such as running payroll, paying bills, purchasing assets and even paying themselves. Are all things that an entrepreneur needs to do in their business. But should ensure that they have the money to do so. So that they do not end up making a financial decision that cause them to run out of money.
A great example of this says Edmonton bookkeeping. Is if a business owner looks at their bank accounts, in order to see if they have enough money to run payroll. And they see that there is twenty thousand dollars in their bank account.
They might believe that they have enough money to run their eight thousand dollar payroll. And schedule it. Without taking into consideration that they have written fifteen thousand dollars worth of checks.
The bank account will not show them how much money is pending to come out in those checks that they have written. So if an entrepreneur runs payroll.
They can either because the fifteen thousand dollars with of checks to bounce. Or they could cause their payroll to bounce. And either situation would be extremely negative for the business owner.
While some of these financial mistakes are not going to significantly negatively impact a business owner. Or, the mistakes are what they can recover from. However, if an entrepreneur continues to make these errors. Or if the error is large enough. It could cost them their business.
According to industry Canada. 29% of all failed entrepreneurs say the reason why they failed. Was because they ran out of money in their business. So spending money that they do not verify they actually have. Is one way entrepreneurs can run out of money in their business.
Therefore, learning how to do a bank reconciliation. Can help a business owner understand how much money they actually have to use in their business. So that they can make the best financial decisions possible. That not only can help them avoid problems in their business. Actually help them grow as well.
This is why doing a bank reconciliation is often one of the first things that Edmonton bookkeeping companies recommend their business owners learn how to do. So that they can always make the most informed financial decisions possible.
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The reason why learning how to do bank reconciliations is so important says Edmonton bookkeeping. Is because it will help entrepreneurs make the most informed financial decisions possible.
Not only can help entrepreneurs understand how much money they have to utilize in their business. So that they can avoid making financial decisions that can cause them to run out of money.
But an entrepreneur can also use this information to be proactive. In understanding if they need to increase their marketing efforts. Such as cold calls or sales calls. Or if they need to increase their online marketing dollars. So that they can locate more customers and generate more transactions.
With how important this is not only to help them avoid making mistakes. But to be proactive in helping them grow their business. Running how to do a bank reconciliation correctly is extremely important.
The first thing that entrepreneurs should do. Is take their most recent bank account statement. And their last bank reconciliation. Once they have these two documents Edmonton bookkeeping says.
The next step is to verify the starting bank balance matches the statement balance of the previous bank reconciliation. This will ensure that there been no mistakes made since the previous bank reconciliation. That could cause errors to exist on the new bank reconciliation.
One of the most common reasons why an error would have been created. Is if an entrepreneur has accidentally booked a transaction for a future date. And marketed as cleared.
An example of this, is if an entrepreneur is reconciling the month of May before the end of the month. But they booked transaction on June 20, and marketed as having come out of their bank account already.
If it has cleared their bank account already. Then it should have the date that it cleared, which would be in a the month of May, because that is the month they are working on. Therefore, all an entrepreneur has to do is going to their accounting software and fix that mistake.
The next thing that an entrepreneur needs to do when doing a bank reconciliation. Is to look at all of the transactions that have already come out of their bank account. And that will leave them with a list of pending transactions.
Edmonton bookkeeping says entrepreneurs need to look at that pending transaction list. And see if there are any mistakes on that list. They can tell if it is a mistake most often by the dates of how long that transaction has been outstanding.
If it has been outstanding for more than a few weeks. A business owner should ask themselves why. And then check in their accounting software. To see if it was a mistake. Either entering the transaction in duplicate times. Or entering the wrong amount in.
By fixing these errors, a business owner can then see how much money they have in their business to utilize. Once all of the pending transactions come out of their bank account.
This can help entrepreneurs only spend as much money as they actually have. So that they can avoid running out of money in their business.