2 min read
Cash is one of the most important assets a business can hold. Being able to reconcile the bank account accurately is a crucial part in understanding the total amount of cash a business holds.
So, what is bank reconciliation? A bank reconciliation is the process of comparing transactions and balances that you recorded in your register versus what the bank balance states. When reconciling, it is important to note any discrepancies that may arise. Reconciliations are a tool to use to find the missing pieces, i.e., Items that are in transit (outstanding checks, in transit deposits, or other timing differences).
An example of this would be: Your cash balance per your books says $2,500.00 and the bank account says $3,000.00. Automatically, we can see that there is a $500.00 discrepancy. While scanning your register, you see a $500.00 check written out to the local school for a sponsorship. You do not see this coming out of your bank account yet – thus the reason for the $500.00 discrepancy. You would note that the $500.00 check is outstanding in terms of the bank balance. By notating the outstanding item, you are reconciling your bank balance to your cash balance.
Why is reconciling the bank balance to the cash balance important? We are human and mistakes happen; a number could easily be transposed, missing a digit, or omitted. Reconciling the cash account to the bank allows for errors to be detected and fixed quickly.
Why is reconciling important? Reconciling frequently is a crucial tool to help prevent fraud and improve cash flow. Reviewing your transactions and comparing your records to the bank can help to identify any unauthorized items quickly. Likewise, knowing the true cash balance allows businesses to make a more informed decision when it comes to spending or investing.
It is important to know that bank reconciling is much more than just an accounting task. They are a very crucial part of ensuring accurate financial records. Routinely checking your records and striving to maintain accuracy is essential in presenting the most accurate cash balance available.
At Baldwin, we understand that running a business is tough. The Elevate Team’s top priority is helping clients succeed by providing services that allow owners and operators to focus on what you do best. Leave the back office operational task to us - contact the Elevate Department today if you have any questions or if you would like help with getting your reconciliations in order.
This article was written by Megan Clem. Megan is a Senior Accounting Specialist with Baldwin CPAs. For more information on the support Baldwin CPAs can provide you, contact megan.clem@baldwincpas.com.
