The reason why many entrepreneurs are not using bank reconciliations as often as they should says Edmonton bookkeeping. Is because they either do not know what they are. Or they do not know why they are important.
Ultimately, an entrepreneur should understand that a bank reconciliation. Is a report that will show them how much money they have in their business. Once all of the pending transactions they have out of their bank account. As well as going into their bank have cleared.
Every time an entrepreneur enters information into their accounting software. Such as an invoice that they have received. Or if it’s an invoice they have created.
Or when they have sent a client payment in the form of a check, electronic fund transfer or any other kind of payment. All of this information will end up impacting their bank account once those transactions clear their bank.
In addition to that says Edmonton bookkeeping. Any of the payments that are incoming to the entrepreneurs business. Such as checks that they have received, as well as debit and credit card transactions.
These might take a few days to clear. Such as deposits that have been entered into their bank from a bank machine. Or when they do a batch on their credit card or debit card machine. It may take three or four days to clear.
Therefore, a bank reconciliation. Is the document that shows an entrepreneur exactly how much money they have to use in their business. Once all of those transactions have actually cleared.
This is extremely important. Because one mistake that business owners tend to make consistently says Edmonton bookkeeping. If they are not using bank reconciliations.
Is that they look at their bank account to see how much money they have to spend. And then end up over spending money. Because they have not taken into consideration the payments that are coming out of their account.
Therefore, learning how to create a bank reconciliation. Can help entrepreneurs spend money more responsibly. By understanding how much money they actually have to use in their business.
And also help them make decisions on what they need to do. If they do not have enough money to do things like run payroll, pay bills. Or make asset purchases that they need to grow their business.
In fact, the power of a bank reconciliation. Is often that an entrepreneur can see that they do not have the money that they need. And so they increase their marketing activities. Either by increasing the amount of money that they are spending online. Or going out and doing more sales calls.
By learning how to do a bank reconciliation. Is is owners not only gain an important understanding of their own finances. But be able to use that information to proactively ache decisions in their business.
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Business owners should learn how to do a bank reconciliation early on says Edmonton bookkeeping. Because entrepreneurs who do not know how to do bank reconciliations. Do not have the true understanding of how much money they have in their business.
A bank reconciliation is a report that they can create. That will show them how much money they have. Once all of the transactions that have been created have cleared their bank account.
The busier that a business gets, the more transactions they have. Which will result in an entrepreneur having it more difficult time keeping track of all of the payments that they have made.
When they create a bank reconciliation, Edmonton bookkeeping says they first need to start by taking their most recent bank balance. As well as their previous bank reconciliation.
The next thing that they are going to do is compare the starting bank balance to the ending balance of their last bank affiliate in. Edmonton bookkeeping says these two amounts should match.
And if not, is typically because an entrepreneur has entered the wrong date in a transaction after the last bank reconciliation. Therefore, if they to amounts do not match. They can already start fixing mistakes on their accounting program.
The next thing that they will do, is look at all of the transactions that they have booked into their accounting software that have come out of their bank account already.
What they will be left with says Edmonton bookkeeping. Is a list of all transactions that have not cleared the bank account of the business yet. And what an entrepreneur needs to ask themselves is why are they uncleared?
They are either uncleared, because they are taking the time they need to clear such as a check, which often takes a few weeks to clear. Or, they are uncleared because they are an error.
The most common way to determine which is an error says Edmonton bookkeeping. Is looking at how long these transactions have been pending for. Electronic transactions should not be pending at all. While debit and credit transactions can take anywhere between 1 to 7 days.
Checks on the other hand can take several weeks to clear. Simply because they are most often sent in the mail, and then requires the person to receive them to deposit them into a bank account.
This entire process may take several weeks. Which is why an entrepreneur should not start to panic if they see that a check has been outstanding for 3 to 4 weeks.
However, business owners also need to take into consideration. That if it check has been outstanding for longer than six months. It is typically an error. Because checks that are not cashed for six months become stale dated. Means they are no longer valid to be cashed.
By fixing the transactions that are mistakes. Entrepreneurs can end up with a report showing all of the transactions that are yet to clear. So that they can see how much money they will have in their bank account once all of these transactions take place.
This will help entrepreneurs be able to make decisions on spending that money, because they will know exactly how much money they will have to work with.