There are many reasons why entrepreneurs should get into the habit of running bank reconciliation reports says Edmonton bookkeeping. But the most important one is being able to use that report in order to make informed financial decisions. Industry Canada says that half of all entrepreneurs will end up failing by year five, and 29% of those failed entrepreneurs say the reason why they failed is because they ran out of money. By checking their bank reconciliation, entrepreneurs can see how much money they have to use in their business, which will allow them to make financial decisions easily and accurately.
If entrepreneurs believe that they can make decisions about how much money they have in their business simply by checking their bank balance, they may not take into consideration all of the pending transactions that they have such as checks that they have sent out to vendors, making it look like they have more money to use in their business than they do. By making a financial decision that they can afford, they are causing the check that they previously sent out to bounce and forcing a business owner to run out of money.
In order for an entrepreneur to ensure the accuracy of their bank reconciliation report, they have to understand what errors can exist on it most regularly says Edmonton bookkeeping. Uncleared transactions are the number one mistake that exists on bank reconciliation reports by entrepreneurs who do than themselves and can end up making it look like an entrepreneur has more money in their bank than they do. For example, if entrepreneurs have uncleared deposits that are in fact an error, it makes their revenue look overstated, and a business owner might believe they have more money to utilize in their business than they do. So, therefore, is not only important that businesses run bank reconciliation reports prior to financial decisions, they need to ensure that they are doing so carefully, and checking errors accurately, slick end up with the right total.
The reason why transactions might not clear on the bank reconciliation report is if an entrepreneur has entered the date in incorrectly, by mixing up the date and the month or putting in the wrong year. Any entry error can cause this mistake to happen says Edmonton bookkeeping. Another error that could cause a bank reconciliation report to have uncleared charges, would be if an entrepreneur entered in a transaction twice. For example, they entered the check into their accounting software, and then later sell the check style the end thought that they did not enter already and put it in again. By checking for these entry errors, can help an entrepreneur ensure the accuracy of their bank reconciliation.
By being very diligent ensuring that there running bank reconciliation reports regularly, and checking for errors, entrepreneurs can use this as a very important tool to verify that they have the money in their bank to make financial decisions says Edmonton bookkeeping. It is important that entrepreneurs get into as habit because as their business grows, this becomes more and more important for entrepreneurs to do.
Edmonton Bookkeeping | Learning How To Create Bank Reconciliations
Many entrepreneurs understand how important it is to do bank reconciliation reports, in order to verify how much money they have in their business says Edmonton bookkeeping. However, they may not understand how easy it is for mistakes to happen on the report, and if they are not being diligent in watching for errors, they can end up with the report that will not help them make informed decisions.
The most common way for bank reconciliations to have mistakes are in uncleared items. Edmonton bookkeeping says that what in the uncleared item is, is a transaction that an entrepreneur has entered into their accounting software, but has not cleared their bank yet. An example of the most common uncleared transaction is a check. An entrepreneur will create the check and their accounting software, and they mail it to their vendor, and it takes a week to get there, another week for the vendor to open the mail and another week before they take that check to the bank. This means that this pending transaction could be waiting for up to three weeks or more to clear.
Other examples of transactions that might take time to clear include any bank card transactions and credit card transactions. Depending on where and when the transaction was made, it may take these transactions anywhere between one and five days to clear. For example, if an entrepreneur made a purchase with their credit card the Friday evening of a long weekend, it might not show up in the statement until two or three days after the long weekend. The only type of transaction that should never be pending are electronic transactions such as E transfers because those appear in the bank account immediately.
If an entrepreneur pays attention to the uncleared transactions, if they have been in the bank reconciliation for longer than seems necessary says Edmonton bookkeeping, that often points to an error. For example, when an entrepreneur sees that a bank card transaction has not cleared for a month. That is typically an error. If they see electronic transactions uncleared, they know that that is an obvious error as well.
The way to fix these errors is first to look to see if there has been a mistake made in entering the transaction. Either a date has been entered incorrectly, or it has been entered twice. This is the case, those transactions drop off the report, and verify its accuracy. If it has the check, a business owner should be calling the client to verify they received it, and if they have, times them to cash it before it gets stale dated. If an entrepreneur finds that it is not an error, this might point to someone stealing money from the business, at the point of depositing it. By having a transaction entered into the software, but not appearing in the bank, could mean that an employee is stealing money. If they see many uncleared transactions that do not have errors attached to them, an entrepreneur should change their protocol on how deposits get made to see if that results in fewer uncleared transactions with no explanation.
By being diligent in reviewing their bank reconciliation report, Edmonton bookkeeping says that entrepreneurs can end up with a great tool that will help them make informed financial decisions in their business. Doing this, entrepreneurs can avoid running out of money in their business, which causes 29% of entrepreneurs to fail every single year.