Many business owners believe that they are able to determine how much money they have in their business simply by looking at their bank statements says Edmonton bookkeeping. However, these entrepreneurs may not be taking into consideration all of the pending transactions that are scheduled to come out of their bank account. By making important financial decisions based only on their bank statement could cause business owners to make errors, and spend more money than they actually have to use in their business. Not only can this error cause financial hardship for the business, but it can also put the business at risk of having to close their doors because they ran out of money.
In order to help business owners understand exactly how much money they have to use in their business, bank reconciliation is the financial statement that tells an entrepreneur just that. By taking the bank statement, and subtracting all of the transactions that are pending to clear out of the bank account, a business owner ends up with a financial report telling them exactly how much money they have to use in their business. This is such an important report, that business owner should get into the habit of running this statement prior to making any financial decisions in their business.
In order to have an entrepreneur end up with as accurate as the statement is possible, Edmonton bookkeeping recommends entrepreneurs have all of their documents in place prior to running a reconciliation and take their time from start to finish to ensure it gets done carefully so that no errors are made. In order to start, a business owner should ensure that the opening bank statement is the same as their final total on their last bank reconciliation. If an entrepreneur misses this first important step, they could end up with a reconciliation that is inaccurate, despite how carefully they have entered all the information.
To help an entrepreneur understand the information on their bank reconciliation once it is finished, they should also understand what an uncleared charge is. This is when a business owner either puts money into their business or takes money out, and it is accounted for in their accounting software, but it has not cleared their bank account yet. For example, a business owner that writes a check, but that check has not been cashed yet. It is important that once the bank reconciliation is finished, business owners should check these uncleared balances to verify their accuracy.
After business owner runs the bank reconciliation and checks for errors, they will able to use this financial statement to help them make more informed financial decisions in their business. If they find out they do not have enough money to disburse payments or make purchases, they can generate more revenue, do some collection calls, or make a plan on how they are going to disburse those funds in the future, when they have more money. Doing this can significantly help business owners be more financially responsible with the money in their business.
Edmonton Bookkeeping | Responsible Spending With Financial Statements
In order to help business owners understand how much money they have to use in their business, Edmonton bookkeeping recommends they learn how to do bank reconciliations as early on in their entrepreneurship as possible. Not only is it important to do bank reconciliations on a regular basis, but also to learn how to verify the accuracy of the information in the report, so that they end up with a financial statement that will help them spend their money without making mistakes.
Some of the most common errors that exist on a bank reconciliation are uncleared charges. Typically, uncleared charges will appear on the financial statement when it has not yet cleared the business owner’s bank account. However, if an entrepreneur has either entered the date incorrectly, or if they have entered it twice by mistake, fictitious uncleared charges could end up lingering on the bank reconciliation, and affecting the final total.
When a business owner sees that charges are uncleared for more than one bank reconciliation, they should review the statements to ensure that no entry error is made. If the date was entered incorrectly, by fixing the date Edmonton bookkeeping says that will remove the charge from the statements. Also, if it was entered twice by mistake, entrepreneurs can remove it easily so it does not affect the statements.
If the uncleared charges are checks and do not point to any errors, business owners should contact their vendor who has that check to verify the actually did receive it. If not, the entrepreneur can put a stop payment and resend it. If the vendor did receive the check, it is a great time for the business owner to remind them to deposit it into the bank account, so that it does not become stale-dated, which would render the check useless.
By going through these important checks, business owners can ensure that the final balance showing on the statement is truly reflective of how much money they have in their business to use. Therefore, is very important that entrepreneurs learn how to do bank reconciliation, and also how to fix mistakes. Not only are mistakes quite common, but they’re also very easy to fix, so there is no reason why business owners should not be able to ensure the accuracy of their bank reconciliation.
With how important this financial statement is for helping business owners make informed decisions, if they find themselves unable to consistently run a bank reconciliation, or check it for errors, they might want to hire professional help to them with this task. Hiring and Edmonton bookkeeping company like always bookkeeping can help entrepreneurs ensure that they always have timely and accurate bank reconciliations in order to make all of their financial decisions within their business. By doing this, business owners can ensure that they never put their business at risk of running out of money by not understanding how much they have to use in the first place.