Not only is it extremely important for entrepreneurs to learn how to do a bank reconciliation accurately from start to finish says Edmonton bookkeeping, is also extremely important for entrepreneurs to learn how to fix mistakes that are commonly found on this financial statement. If an entrepreneur is not fixing mistakes on their bank reconciliation prior to using it to make financial decisions, they could be making poor decisions, or major mistakes because they do not have the right information. Since 29% of all failed businesses say they ran out of money as a reason why their business failed, helping business owners make more informed financial decisions can help them avoid this fate.
In order for a business owner to understand why it is important to correct mistakes, they need to first understand what the purpose of a bank reconciliation is. This is a report that is going to show a business owner exactly how much money they have to use in their business, once they have made all of their pending transactions have cleared their bank account. Whether this is payments that are outgoing or payments that are incoming, all of those transactions need to be taken into consideration when an entrepreneur needs to know how much money they have their business to use.
If a business owner is looking only at their bank statement in order to determine how much money they have to use in their business, it is not showing a business owner how much money they have once all of those pending transactions clear their bank, it is only showing how much money is in the bank at that moment. If a business owner has written a one thousand dollars check and has not cleared, that bank statement will not show them how much money they will have once that check clears, but how much money they have currently. They put their business at risk of running out of money if they only look at their bank statement to figure out how much money they have to spend.
Therefore, an entrepreneur needs to do a bank reconciliation every single time they are going to disburse cash in their business. Edmonton bookkeeping says that this can help entrepreneurs understand how much money they have to use so that they do not accidentally overspend. However, trying to run several bank reconciliations every month may take too much time, and business owners may choose not to so run the reconciliation every single time, or they may not be careful. Therefore, it is best practices for entrepreneurs to get into the habit of disbursing money only a couple of times every single month. For example, payroll is a great time to disburse cash, so if they do a bank reconciliation to figure out if they can run payroll, to a great time to also figure out if they can disburse the vendors at the same time to. By minimizing how many bank reconciliations an entrepreneur has to do, it increases their chances of ensuring they do a proper and thorough job of it.
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If entrepreneurs understand how important it is to do regular bank reconciliations says Edmonton bookkeeping, they also have to understand that it is important to correct mistakes on them just as regularly. The reason why, is if business owners are using financial statements that are not accurate in order to make decisions, they still might be making mistakes, or poor decisions because they are unaware of how much money they actually have to use in their business.
Uncleared transactions are the most common mistake that persists on bank reconciliations. Unfortunately, the uncleared transactions is that is there in error will make it look like an entrepreneur has more money in their business than they actually do. Therefore, by not fixing mistakes on their bank reconciliation on a regular basis, business owners can end up spending more money than their business can afford because their financial statement is incorrect.
In order to fix these mistakes, entrepreneurs should understand that the two most common reasons why transactions remain uncleared on their bank reconciliation and error, is when they have the wrong date applied to them when an entrepreneur entered that payment information into their accounting software. The second most common reason is if entrepreneurs have entered that payment into their accounting software twice by mistake. If they see any uncleared transactions that have been persisting for more than a month, they should review all those transactions in order to see if those transactions had those errors. By fixing the errors, entrepreneurs will fix their bank reconciliation.
In order for entrepreneurs to understand which uncleared charges they need to pay the most attention to, Edmonton bookkeeping says that business owners to pay attention to what is uncleared for the longest. While checks typically take the longest to clear, electronic transaction is should not appear at all, because they do not take any time to clear. The more familiar an entrepreneur is with their bank reconciliation, the more likely they are going to be able to catch those uncleared transactions and fix them.
Also, business owners get used to the fact that bank card and bank card transactions will take the shortest amount of time to clear, anywhere between 2 to 5 days. It depends when those transactions happened when they will clear. For example, a credit card transaction is done on a Friday night before long weekend you might take seven days to clear, as opposed to a credit card transaction that happened Monday at ten.
Once entrepreneurs get familiar with their bank reconciliation, they will be able to use it to help them make more informed and guided financial decisions in their business. However, if they have any problems or questions they can contact their Edmonton bookkeeping company always bookkeeping to help them either answer questions or to take over doing this tasks that entrepreneurs can ensure that they always have up-to-date as well as accurate financial statements in order to make informed decisions in their business.