Bank Reconciliations. Sounds very tedious. But doing some boring and tedious work can save you from pitfalls. So sit back and read more about the need to do bank reconciliations.
What is bank reconciliation?
As the word reconciliation suggests, you will be comparing bank statements with your books of accounts for the same period. The idea of any comparison is to find discrepancies and rectify them.
Who is responsible for bank reconciliation?
If you do your own accounting, then it is you. If you have an accountant then it is the accountant. You will need to do bank reconciliation only if you are following the accrual method of accounting. If, on the other hand, if you are following the cash method of accounting, then you record every transaction at the same time as bank does; there should be no discrepancy between your books and your bank statement.
Still wondering which method of accounting to use? Read our Cash vs Accrual accounting for more.
Why should we do bank reconciliation?
1.So you don’t spend the money that you don’t have
If your bank account and your books don’t match up, you will end up spending money you don’t really have or holding on to the money you could be investing in your business.
2. To track cash flow
Cash is king. Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly.
3. To detect frauds
Bank reconciliation will not stop frauds but will help you detect when it has happened. For instance, you could pay a vendor by check, but they could tamper with it, making the amount withdrawn larger, and then cash it. The discrepancy would show up while you reconcile your bank statement.
4. To detect errors
Banks are not infallible, they do make mistakes. Such errors maybe rare. If there’s a discrepancy in your accounts that you can’t explain any other way, it may be time to speak to someone at the bank.
5. Stay on top of accounts receivable
If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the courier today, I promise!” Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid).
Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control. And if you’re consistently seeing a discrepancy in accounts receivable between your books and your bank, you know you have a deeper issue to fix.
Conclusion
Doing bank reconciliation sounds easy but in reality it is not so. Here is where Zoho Books can help. You can sync your bank accounts with Zoho Books and even make vendor payments directly from Zoho books using the ICICI+Zoho Books integration. Reach out to us today to learn more.