What is Bank Reconciliation and Why Should You Outsource It?
In any economy, accurate financial information is the most significant aspect that assists businesses in making educated decisions, which gives them a competitive edge over others. Recent studies showed that minor financial errors can lead to a low success rate for small businesses.
It is proven from historical data that if unchecked, outdated or incorrect financial data can become a snowball. At this stage, it is important to understand that the data we are referring to is the cash balance, and fortunately, bank reconciliation is the best tool that verifies each and every transaction. So, let’s read on further and understand business accounting for accurate bank reconciliation.
What is Bank Reconciliation?
If we elaborate in layman’s language, bank reconciliations are the way that reflects the difference between the business bank statements and the company’s cash balance. A secondary accounting service that is not part of the primary company’s accounting is known as a bank reconciliation statement. It is the most crucial aspect that without which, accounting work is not considered complete. It is a critical statement that assists accountants in determining fraud, any kind of errors, and inefficiencies in the bank statement and the company’s cash statement.
Why Bank Reconciliation is Important?
When bank passbook balance and bank book balance do not match owing to various unfavorable and favorable conditions, then reconciliation becomes crucial for both statements to identify the cause of the difference. Many companies outsource bank reconciliation services to eliminate any chance of fraud or errors in their company’s accounting books.
Workflow of Bank Reconciliation Accounting
Bank reconciliation requires careful evaluation and critical analysis with unbiased judgment. To achieve all this, most companies outsource bank reconciliation services. Mostly, companies make reconciliation statements to compare their bank passbook with internal company records. However, it is important to understand that if both statements are balanced, there is no need to create a reconciliation statement. On the contrary, it is crucial for companies to show the reason behind the reflected difference.
In the whole process, the main responsibility falls on the accountant’s expertise, as the workflow requires careful evaluation, non-erroneous matching of account entries, and separating out fishy or non-recorded transactions to determine the reason for the difference.
Importance of an Accurate Bank Reconciliation Document
At this stage, it is necessary for business owners to understand that under federal law, business accounts are less protected than consumer accounts, which makes it critical for business accounts to mitigate any account problems at the first hand. And the rectification workflow must start early to avoid any lengthy reconciliation steps.
Thus, to avoid any penalties and fines due to differences in bank reconciliation and company statements, understand the following benefits of correct bank reconciliation:
Helps in Identifying False Reporting and Frauds
In an established corporate business scenario where many people have access to the company’s bank account and are able to withdraw or deposit money, the chances of fraud and false transactions are high. Also, due to the business size, fraud detection is almost impossible at the micro level. Here comes the savor, bank reconciliation! Bank reconciliation statements allow accountants to identify various frauds at an initial level. The examples of fraud are temper cheques issue in the company’s name, transactions without verification, unauthorize amount withdrawal, missing entries, etc. So, it its important to outsource bank reconciliation services with the best accounting service providers.
Mitigate Administrative Issues
Accurate bank reconciliation statements also help firms to identify administrative financial record-keeping issues in their organization and find ways to mitigate them. Companies can improve their financial statements, accounts receivable, and cash flows.
Track of Bank Fees
Owing to erroneous reconciliation statements from the company, banks charge a number of fees and penalties, other than the service fees. Bank reconciliation statements are beneficial in this case as they allow companies to track bank penalties and fees.
Keep an Eye on Payment Received
Bank reconciliation services ensure accurate accounting processes, including the reflection of payments received and pending. It is such a useful feature that allows internal accounts to keep an eye on payments received and ensure consistent cash flow.
How to Outsource Reliable and Accurate Bank Reconciliation Services?
Now we understand that bank reconciliation is the most important aspect in business accounting; it is also significant to know that companies must outsource professional bank reconciliation services. It will have a great impact on the company’s monetary reserve, and also keep the company clean from any penalties, charges, and fines due to incorrect bank reconciliation statement submission.
