If entrepreneurs are not aware of the reason why it is so important to reconcile their bank account, they may either not do it, or do not take the due care necessary to do it properly says Edmonton bookkeeping. If this is the case, they may not end up with the correct or accurate financial statements needed in order to make informed financial decisions in their business. Entrepreneurs can then end up making financial decisions that could cause harm to their business like running out of money. However, if entrepreneurs understand why bank reconciliations are needed, they can either learn how to do them properly or ensure that they hire someone who can.
The reason why entrepreneurs should do a bank reconciliation is so that they can understand exactly how much money has in their business to spend. Many business owners may make the mistake of looking at their bank balance in order to make financial decisions but a bank balance does not accurately reflect how much money a business owner has to spend. While it does show how much money they have in their account currently, any transactions that need to clear the bank account are not represented by a bank balance.
The bank reconciliation, on the other hand, shows an entrepreneur how much money they have, once all known transactions have cleared the bank account. That means says Edmonton bookkeeping if an entrepreneur has written a five thousand dollars with checks that have not cleared yet, their bank reconciliation will show how much money they have to spend once those checks are cashed. By understanding the difference between the two, business owners can not only learn how to do them properly but use them consistently to avoid making poor financial decisions in their business.
In order to ensure that they are making the best financial decisions possible, entrepreneurs should get into the habit early on in their business of doing bank reconciliations before every single financial transaction they make. Whether it is paying vendors, running payroll, or even dispersing money to themselves, every time a business owner is going to spend money, they should first do a bank reconciliation to ensure that they have the funds available.
Not only is it important for business owners to understand how much money they have once payments they have made have gone out, but payments that they are expecting in may also cause the bank balance to not accurately reflect how much money they have. This can also help business owners understand if they do have the money they need to pay important bills, pay staff or making asset purchases that will allow them to grow their business.
Business owners can ensure that they are learning how to do a proper bank reconciliation if they find that they are not able to do it consistently, or properly, an entrepreneur will know how important it is to hire in Edmonton bookkeeping company such as always bookkeeping to get them to do their financial statements on their behalf so that an entrepreneur can always ensure that all financial decisions will be supported by accurate financial statements so that they can make the best decision for their business.
Edmonton Bookkeeping | How To Reconcile Your Bank Account
Once an entrepreneur understands how important it is to accurately and consistently reconcile their bank account says Edmonton bookkeeping, they can learn the best steps for how to do it accurately, and either avoid or fix errors. If an entrepreneur uses accurate financial statements in order to make business decisions, they could end up making poor decisions, because they do not have the money they think they do.
Technology can significantly help entrepreneurs properly do a bank reconciliation such as using QuickBooks online. Once they have their accounting software, they only need three things to properly do a bank reconciliation: their bank account balance, all of their bank statements, a record of all checks written in the last month. Once they have that, Edmonton bookkeeping says that entrepreneurs are ready to start the process of reconciling their bank account.
When an entrepreneur starts the process, they should ensure that they are checking to ensure that their statement balance matches their last reconciled amount. The reason why it is important to do this as the first step is that if the two amounts do not match each other, no matter what a business owner does doing the reconciliation, it will not end up with the correct amount. Therefore, ensure that they are starting in the right place is important.
When an entrepreneur is finished their bank reconciliation properly, it is going to be able to show them the beginning balance, there cleared transactions, all incoming deposits, the ending balance any uncleared balances as well as the registered balance. These are all of the things that an entrepreneur will see, and it is very important that they verify any uncleared balances are accurate in order to verify that they are not mistakes. If an entrepreneur has entered checks in twice, or the incorrect date, they might list as being uncleared, when actually they are mistakes. If an entrepreneur season uncleared balance for longer than one bank reconciliation, they should verify its accuracy.
It is very important that all mistakes are caught, in order for an entrepreneur to end up with the best and most accurate bank reconciliation possible. If they do not, they put their business and their financial decisions at risk, by making financial decisions off of incorrect statements.
With how important bank reconciliations are for business owners to make important financial decisions, if an entrepreneur either cannot afford the time to do a bank reconciliation before every financial decision or if they find they are unable to do it accurately, then business owners may find it more efficient and effective to hire in Edmonton bookkeeping company like always bookkeeping in order to ensure the accuracy of these financial statements. By doing that, entrepreneurs will be able to make their financial decisions confidently, so that they know they will not make any decisions that could cause harm to their business.