It is extremely important that entrepreneurs not only get into the habit early on of doing bank reconciliations says Edmonton bookkeeping, but also checking them for errors. The reason why this is so important is so that business owners can ensure that they are making the right financial decision for their business. Bank reconciliations that have errors on them, will not accurately reflect how much money an entrepreneur has in their business to use, and can cause them to make decisions that will have them running out of money in their business. This is very significant because industry Canada says that 50% of businesses in Canada will go out of business in five years, and 29% of those failed entrepreneurs say that running out of money was the reason their business failed. Therefore, by fixing errors on their bank reconciliations, can help entrepreneurs avoid mistakes that can cause them to run out of money in their business and be forced to shut down.
A bank reconciliation shows an entrepreneur exactly how much money they have in their business to use. Many entrepreneurs especially when their brand-new, make the mistake of looking at their bank statement in order to determine how much money they have to use in their business. The reason why this is a mistake according to Edmonton bookkeeping, is because while the bank statement shows exactly how much money they have in their business in that moment, but the bank statement does not show, is how many transactions are scheduled to come out of the bank in the future. For example, if an entrepreneur has sent out a check, a bank statement will not show the entrepreneur how much money they have once that check clears. A bank reconciliation is a financial statement that will show an entrepreneur just that.
In order to ensure a business owner has the correct information about how much money they have to use in their business, they should get into the habit of running a bank reconciliation as often as they are making financial decisions. By doing this, entrepreneurs will always see how much money is available to be used when figuring out if they can disburse funds. Whether it is running payroll, or paying vendors, by looking to see how much money is available in the business can help business owners understand if they can afford to disburse that cash or not. However, just doing a bank reconciliation is not enough. They also have to check for errors. Checking for errors at the same time they do the bank reconciliation can ensure that the financial statements they end up with will be able to help them make that decision.
Learning what a bank reconciliation is is the first step to ensuring business owners are not overspending money in their business, which could put their business at risk. If however entrepreneurs are finding it difficult to either have the time to run a bank reconciliation on a regular basis, or to fix errors, but they should do is hire and Edmonton bookkeeping company such as always bookkeeping, and get the professionals to ensure they have the right financial statements for their business.
Edmonton Bookkeeping | Typical Errors Found On Bank Reconciliations
If entrepreneurs make financial decisions without consulting their financial statements, they are putting their business at risk according to Edmonton bookkeeping. In fact, 29% of all failed businesses say the reason they failed was that they ran out of money. If business owners look at their financial statements and particularly their bank reconciliation prior to dispersing any funds, they will be able to make the decision if they can afford to do that, or if they need to raise more money in their business.
Not only is it important for entrepreneurs to do bank reconciliations, but it is even more important to learn how to fix errors that might exist on those reports. The most common error that exists on a bank reconciliation according to Edmonton bookkeeping is uncleared balances. Uncleared balances are transactions that have been logged into the accounting software but has not cleared the bank account yet. There is several reasons why these transactions might appear in error. Learning why an error might exist can help entrepreneurs check the accuracy of uncleared transactions.
A common reason that a transaction might show as uncleared, is if an entrepreneur has accidentally entered the wrong date. If there is a wrong date, Edmonton bookkeeping says that when the transaction goes through the bank account, it will have the wrong date on it, and it will not clear the charge on the financial statements. Another reason is if an entrepreneur has accidentally entered a transaction in twice, as one clears the bank account, the second one will never clear. By learning how to look for duplicate entries, can help an entrepreneur remove errors from their bank reconciliation.
The reason it is important for the business owner to remove errors from bank reconciliations is that errors can actually make it look like a business owner has more money in their bank account than they actually do. Therefore, if they are not removing these errors, they might make a decision to spend more money than they actually have. If they do that, they could potentially run out of money in their business and end up having to close their doors.
Once an entrepreneur gets into the habit of running regular bank reconciliations and checking for errors, they can be confident that they have a tool that is going to help them effectively spend money in their business, without making financial mistakes. However, if a business owner is struggling with getting reconciliations done regularly, or struggling with fixing errors, they may choose to contact and Edmonton bookkeeping company such as always bookkeeping to help them have regular up-to-date financial statements including bank reconciliations that are going to help them make these financial decisions in their business.