Many business owners may not understand why they should do a bank reconciliation says Edmonton bookkeeping. When they look at their bank statement. And see how much money they have in their business.
While business owners will be able to see how much money is currently in their bank account. That does not necessarily represent how much money they actually have to spend.
If an entrepreneur has written checks, and those checks have not cleared yet. Or if they have scheduled on electronic fund transfer. But that has also not come out of their bank account.
An entrepreneur will end up having less money in their bank account to utilize. Then it will show up in their bank balance. Which is why entrepreneurs should do a bank reconciliation.
But also, Edmonton bookkeeping says entrepreneurs should consider that if they have payments that are pending. That will also influence how much money they have to utilize in their business. Which is why they should not look just at the bank statement alone.
The bank reconciliation will show an entrepreneur how much money they will have to utilize. Once all uncleared transactions have actually cleared.
And while that is extremely important, doing a bank reconciliation can also help entrepreneurs. By allowing them to fix any errors that may have been made in their accounting or bookkeeping.
And by creating a bank reconciliation, entrepreneurs can see if there are any transactions that are mistakes. That can be fixed, in order for an entrepreneur to see how much money they actually have to utilize in their business.
How an entrepreneur should start their bank reconciliation. Is by taking their previous month’s bank statement. And ensuring that the starting bank statement balance matches the ending register balance.
The reason why this is the first place that entrepreneurs should start says Edmonton bookkeeping. Is because by matching starting bank statement balance with the ending register balance. Verifies that there are no errors before an entrepreneur begins.
If they do not match these two totals. No matter how accurately an entrepreneur completes their bank reconciliation. It will not show an accurate total.
The typical reason why the starting bank statement balance may not match the ending register balance. Is because the future item has been booked. And then that future item has been marked clear.
Therefore, business owners should look for a future item that has been marked clear. And by correcting that mistake. Will typically bring the bank statement and register balance back into alignment. And then the entrepreneur can start working on the rest of the bank reconciliation.
The next step of a bank reconciliation. It is to check to see if there are any outstanding transactions that have not cleared. The reason why this is the next step. Is because it can be very easy to catch mistakes this way. By looking at how long these transactions have been uncleared.
By taking the time to do a bank reconciliation. Can help an entrepreneur start understand how much money they have to utilize in their business. So that they do not end up over spending money. That may cause them to run out of money in their business, which could cause them to fail.
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Even though there is an extremely high failure rate of entrepreneurs in Canada says Edmonton bookkeeping. The second most common reason why entrepreneurs fail. Is because they ran out of money. It makes doing bank reconciliations an extremely important task for all entrepreneurs.
The reason why this is so important. Is because when an entrepreneur does a bank reconciliation. They will be able to see how much money they have in their business. So that they do not accidentally overspend. Which might cause them to run out of money.
One of the first things that Edmonton bookkeeping recommends entrepreneurs do when doing a bank reconciliation. Is looking at all of the uncleared transactions.
What an uncleared transaction is. Is a transaction that has been booked into an entrepreneurs accounting software. But has not cleared through their bank account yet.
One of the most common uncleared transactions that entrepreneurs will see. Is if they have written a, but the check has not cleared their bank account yet.
This is one of the most common uncleared transactions. And also, one of the longest transactions to clear. Typically, an entrepreneur will put it in the mail. And while it is best practices for people to cash checks on the same day that they wrote them.
Some people hold onto the checks for a bit longer than that. Even once they have received the checks. Therefore, it is not uncommon for an entrepreneur to see that a has been uncleared for two or three weeks.
However, it is very important that an entrepreneur also realizes. That there is limit on how long checks can be uncleared for says Edmonton bookkeeping. It is a has been written for six months. It is no longer valid, and is what is called stale dated.
If an entrepreneur has any uncleared transactions that are checks that are older than six months. This is an error that needs to be fixed. They should first check to ensure that this check has not been accidentally entered twice. Which is why it is showing as uncleared.
And if there is no duplicate entries made on this check. They should contact the person who has the check. To verify that they have received it Or not.
By cancelling out the uncleared check. And writing another one. Can help ensure that if there are errors on the bank reconciliation. That the business owner can fix it.
But if there vendor actually did not receive the check, or forgot to deposit it. They can ensure that they get that payment to them as quickly as possible says Edmonton bookkeeping.
Either way, this is an important thing for entrepreneurs to do. Not only to see how much money they have in their business to utilize. But also to ensure that they do not have any errors in their accounting software. That could end up causing even more problems later on in their business.