The Importance Of Reconciling Your Bank Accounts

One way to detect any unusual transactions is by comparing your records against the bank records. This practice is known as bank reconciliation.

How does bank reconciliation work?

You reconcile your accounts by comparing record of balances and transactions to monthly bank statement. You will need to review each transaction to ensure that the amounts match perfectly. The bank statements should also show an ending account balance. Bank reconciliation is similar to balancing your checkbook. Both tasks are done for the same reason. Although you may see some slight differences, the differences must be properly explained. One good reason that your transactions may not match is when you write a check to a vendor. This will result in reducing your account balance accordingly. However, your bank will show a higher balance unless the outstanding checks hit your account.

Another reason you will see these differences is when an automatic electronic payment is paid into your account. If it appears on your account earlier than expected, discrepancies will be evident. There is no need to worry as long as the discrepancies can be accounted for.

The importance of bank reconciliation

Problems only get out of hand if accounts are not reviewed regularly. Bank reconciliation will enable you to:

Detect Fraud

Fraud cannot be easily caught unless you perform a thorough investigation by going through your records. Checks that are manipulated or duplicated is a sign of fraud. If checks are issued without authorization or there are frequent incidents of unauthorised transfers, you know that your employee is getting more than what he or she should be paid for.

Identify Problems

There are issues that need your immediate attention, but as your business grows, you become busy taking care of other aspects of your business that you no longer have enough time at your disposal. Bank reconciliation helps you to prevent or identify problems by catching bank errors, ensuring that everything goes into your accounting system properly, keeping track of your outstanding checks, knowing how you much you have available in your bank account and more.

The best time to reconcile your accounts

Business owners must see to it that accounts are reconciled at least monthly. However, if you own a high-volume business where fraud is a risk, you will need to perform bank reconciliation more than once a month. Some businesses even reconcile their bank accounts daily to prevent any unauthorised transactions.

How to reconcile your accounts?

There are many ways you can perform bank reconciliation such as creating a bank reconciliation statement. The first step is to match your transaction and compare your balance at the end period which can be daily, monthly opr quarterly. Your bank should give you access to your online account so you can view and download bank transactions regularly.

Business Practices Your Bookkeeper Cannot Afford To Screw Up

When dealing with numbers, accuracy is very important especially if you are a bookkeeper. Financial reports are the lifeblood of every company. It is where business owners refer their decisions on growing their business. Before you can create a flawless business plan, getting your bookkeeping practices in place must be kept in mind. Committing too many errors on your financial report spells trouble.

Don’t pocket cash from clients

When it comes to securing a loan or seeking for investors, the profit margin plays a huge role. For small business owners, it can be tempting to pocket cash from clients considering the fact that it is your money. However, this practice can wreak havoc on your business in the long run because it undervalues your company. If the money you earn from clients is not on record, your financial report will appear to have a low profit margin and this will not qualify you for additional funds. It can also hurt your tax because when the cash is not reported, you will not be paying taxes on it and this practice is more likely to attract penalties once audit occurs. Make sure you deposit your business income into your business bank account if you want to increase your profit.

Don’t use personal bank accounts

Collecting your income in your personal bank account is not a good practice to follow because it denies you of getting a clear financial picture. How would you know if your business is making a profit if you have already mixed your business and personal bank accounts? You may not know your financial history if you have already fused two accounts into one. Knowing your financial history is a crucial step especially when ATO decides to audit your company. You can be held liable of paying additional taxes if you keep on following the practice.

Don’t ignore bank reconciliation

Make it a habit to check if your bank account is reconciled on a monthly basis. Bank reconciliation ensures that your bank account matches the amount listed in your bookkeeping software. Failing to reconcile regularly can end up overdrawing your bank account, which will result in shouldering bank fees.

Don’t underestimate the value of bookkeeping software

When tracking your financials, it is good to have bookkeeping software that will ease you into recording figures efficiently. Make sure you choose software that can give you real-time information and updates of your financial activities. Bookkeeping and accounting should be part of your routine. Avoid skimping on this valuable task because it allows you to monitor where your money is going. Tracking your expenses and income will give you peace of mind as you know you are not wasting money.

What A Bookkeeper Should Secure Before The Weekend?

A bookkeeper is vital to every business because they know where the business stands financially. Business owners need a bookkeeper for a number of reasons such as keeping track of finances, but they must also understand their business so they will know the essential documents that a bookkeeper must regularly present. Some of the essential information that your bookkeeper should know are the profitable client, the most profitable service or product line and the cash flow. Your bookkeeper may be rushing to carry out a task before the end of the week and may not have the time to discuss some details with you. Before you let your bookkeeper off the hook, you need to set aside at least 30 minutes so they can give you an update of your financial standing.

Things you need to discuss with your bookkeeper:

•    Weekly Cash Flow Analysis – Although there are some aspects of bookkeeping that accounting software can take care of, a bookkeeper needs to deal with cash flow analysis and present financial statements to business owners in vivid details. This way, it will be easy for a business owner to understand where the business is going. Detailed cash flow projections will also help you determine payments for BAS and Superannuation.

•    Weekly Bank Reconciliation – At the end of the week, your bookkeeper should also present your reports, which are related to your bank transactions. Make sure the bookkeeper presents up to date reports or it will be meaningless. You can determine if there are fraudulent transactions if you keep a weekly bank record. Your bookkeeper should be able to record all of the bank transactions that have taken place on a weekly basis. Aside from bank reconciliations, your bookkeeper should also have a weekly report for credit card reconciliations.

•    Weekly Revenue and Margin Analysis – A detailed net profit analysis is important so you can easily track your revenue and gross margin. Your bookkeeper should show you a weekly Work in Progress report.

Why is it necessary for a bookkeeper to secure these reports?

Knowing what is going on with your business on a regular basis will help you identify some measures you need to take in case your business heads in the wrong direction. If you already have an idea that the financial aspect of your business is doing well, you will no longer have to worry about taking some drastic measures. You can immediately put a stop to fraudulent transactions if you make it a habit to check reports on a weekly basis or whenever necessary.

Although it is the bookkeeper’s job to keep financial reports in check, business owners must also take part in ensuring that the reports are correct. A business owner must understand the details that a bookkeeper providers. If you have a nagging suspicion that something is wrong with the reports, you should ask your bookkeeper for an explanation so you will know if you need to reassess your business. It is easy to lose track of your finances if you are attending to other business concerns, but bookkeeping should never take a backseat if you do not want to join entrepreneurs whose business has failed due to poor bookkeeping habits.