When entrepreneurs at first start out in business says Edmonton bookkeeping. They are often able to keep track of how much money they have to use in their business. Simply by looking at their bank account.
This is because they do not have a lot of different transactions going out of or into their bank account yet. However, as an entrepreneur gets busier with more transactions of larger amounts. This becomes more challenging.
However, business owners need to understand that they do not have to rely on how much money they have in their bank account. Order to understand how much money they have to use in their business. Because that is what a bank reconciliation is for.
It is of financial statements that shows entrepreneurs how much money they have to utilize in their business. Once all of the pending transactions have cleared their bank account.
For example, an entrepreneur may have written several checks, as well as arranged electronic fund transfers and payroll. And therefore, knows that by looking at their bank account.
They will be able to understand how much money they have to spend. Because while those transactions are scheduled. They have not happened yet.
The bank reconciliation will show entrepreneurs exactly how much money they have to spend once these transactions have occurred. Making it an extremely important report to learn how to make says Edmonton bookkeeping.
The first thing that entrepreneurs need to do when learning how to do a bank reconciliation. Is to start with the statement of their previous bank reconciliation. And their most current bank account statement.
The first thing that they should verify is that the starting bank balance matches the statement balance of the previous bank reconciliation. If both amounts are the same. This verifies that they are have been no accounting errors made since the last bank reconciliation.
However, if there are errors. It has likely been because it entrepreneur has entered a transaction for a future date. For example, a date in August when they are reconciling July.
Once they fix that future transaction. It should bring the totals back into alignment. Indicating that an entrepreneur can then proceed with the rest of the bank reconciliation. Ensuring that it is not going to cause more errors.
The very next step in doing a bank reconciliation properly says Edmonton bookkeeping. Is to look at all of the transactions that have cleared the entrepreneurs bank account to date.
What a business owner will be left with. Is a list of all pending transactions that are scheduled to come out of an entrepreneurs bank account. However, it is important that an entrepreneur understands that at this point, they should verify that those transactions are accurate.
They can do this first by checking how long each of the transactions have been pending. Because the longer a transaction has been pending, the more likely it is an error. The error could be that an entrepreneur has entered the transaction twice. Or entered an incorrect amount.
By fixing these mistakes first, can ensure that the remaining transactions are valid, and are scheduled to come out of an entrepreneurs bank account. And can leave a business owner with an accurate representation. How much money they have left in their business to utilize.
How can I Do better Edmonton Bookkeeping?
The reason why it so important for entrepreneurs to learn how to do bank reconciliations says Edmonton bookkeeping. Is because it can show them how much money they have to utilize in their business.
In fact, the second most common reason why entrepreneurs fail in business in Canada. Is because they ran out of money. And while there may be several reasons why an entrepreneur runs out of money.
When a business owner learns how to make financial decisions. Based on how much money is in their business. That can help them avoid spending more money than they have.
But it can also help them be very proactive in their business. Such as if they see that they do not have enough money in their business to make a specific financial decision. They can engage in some revenue-generating activities.
Such as increasing their marketing budget, doing more sales calls, or doing a new sales campaign such as flyers for example. Or, they may realize that they need to do some collection calls. To bring money that they are owed into the business. So that they have that money to spend.
It can also help an entrepreneur understand if their pricing is accurate, or if it needs to be raised in order to cover their costs. And it can also help them manage their expenses, and understand if their expenses need to be minimized.
What the bank reconciliation will show. Is how much money an entrepreneur has left once pending transactions have cleared. However, Edmonton bookkeeping says many entrepreneurs do not know what a pending transaction is.
These are all transactions both out of and into an entrepreneurs bank account. That they are aware are going to happen, but have not happened yet.
A great example of this is a check that an entrepreneur has written, and put in the mail to one of their vendors. But it has not cleared their bank account yet.
It might take several days to clear, first because the check has to navigate through the mail. But even once the vendor receives the check. Edmonton bookkeeping says there is no guarantees that they are going to deposit into their bank account that they.
While it certainly is best practices for business owners to deposit checks into their bank account. It might take days, or weeks. Which means any checks that an entrepreneur has written, are going to be a pending transaction.
In fact, business owners should ensure that they do not have any checks outstanding for longer than six months. Because after six months, a check becomes what is called stale dated.
Which means it is uncashed double. So if an entrepreneur sees any checks outstanding for a long period of time, more than six months. They should automatically assume that it is an error that needs to be fixed.
By learning how to do a bank reconciliation accurately. Business owners can ensure that they are able to make more informed financial decisions. That not only can help them avoid running out of money in their business. But help them be proactive and how to grow their business as well.