The accuracy of the records can be verified by doing a reconciliation at least once a month. Reconciliation is the process of comparing two or more sets of records to determine if their balances agree. This process will disclose if the records are completed accurately.
Why it’s important to reconcile?
A regular review of accounts can help people to determine problems timely before getting out of hand. Here are some critical reasons for doing this.
Catching Fraud
One of the most important role of monthly reconciliation is to discover any sign of fraud, such as
Legitimate checks issued duplicated or changed resulting in leaving much more money in checking account.
Checks issued without authorization.
Unauthorized transfers or withdrawals made out of the business account hiding numerous risks. To illustrate, hackers are extremely interested in business accounts holding huge balances, especially common large withdrawals. Multiple people within the organization might have access to those accounts, so it’s easy for everyone to assume that somebody else authorized a transaction. Thus, hackers can get into business accounts by installing malware remotely or by using social engineering to steal account credentials or other confidential information.
Finding Errors
The reconciliation process provides accountants or bookkeepers a double-check function to prevent mistakes. Despite of implement strict control measures, the potential exists for human errors in accounting. Whether fail to reconcile bank statements every month, these errors may go undetected and they could be costly.
The recently updated bank reconcile of Quickbooks Online (QBO) feature gives way better discrepancy visibility, and access to solve.
Following Up on Transactions
If clients complain about not receiving funds, it could be possible that a check was lost in route. Reconciling accounts every month help people catch keep track of outstanding checks or any potential missing payments. In addition, this is useful in identifying issues needed to pay close attention, including:
How much really available in accounts?
Bouncing checks or making failed electronic payments to partners and suppliers
Avoiding bank fees for insufficient funds or going into lines of credit
Knowing if customer payments have bounced or failed
Making sure everything is going into accounting system properly
Keeping a Close Eye on Company Performance
If small business owners do not take time to reconcile bank statements personally, or at least overview the results, they may be unaware of potential income issues or shortfalls. Therefore, having an outsourced bookkeeping company handle on this task can help them keep their fingers on the pulse of business and spot income fluctuations.
When to Reconcile?
It’s actually essential to review your accounts at least monthly. For high-volume businesses where fraud is a risk, more often is better. Some businesses reconcile their bank accounts daily. Everyone can also build protection into their bank accounts – ask the bank for detailed information. One feasible solution is Positive Pay preventing bank from approving payments unless people have previously notified them of the payment.
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