Author Trudy Howard.
Small business owners are usually busy trying to generate revenue & service customers, so they often forego checking their bank statements. In order to have a clear understanding of where your profits are going, and what your expenses are, you must do a reconciliation.
Reconciliations are also referred to as: reconciling the bank statement, bank statement reconciliation, bank reconciliation, or “bank rec.” In simple terms, a bank rec is the process of comparing the business bank statements to the cash account in the general ledger. For example, if your cash account shows a balance of $1,000, and your bank statement shows a balance of $985, you would need to track down the missing $15. Oftentimes, the discrepancy can be caused by bank fees, outstanding checks, and unprocessed credit/debit payments, but more often than not, the discrepancy is caused by double billing, fraud, and unauthorized charges. Now that you know what a bank rec is, let’s look at the easiest way to get it done.
The easiest way to get into the habit of going over your bank statements is to choose a set day and time for your business accounting. I’ve personally found that Sunday nights work best, or Wednesday afternoons. If your bank statements are relatively short, you may want to print the statements and highlight any areas of concern that need to be addressed. Next you want to compare the statement balance to your cash account balance. Once you’ve done the comparison, you need to add 2 things to your figures: deposits in transit, interest earned. After your additions, you’ll need to deduct bank fees, outstanding checks, and journal entry errors.
Although we’ve given you the basics of reconciling an account, this is not an all inclusive article. Should you need bookkeeping services, or assistance with bank reconciliations, please contact us, or call our office at 855-743-5765.