You might have heard the term ‘Bank reconciliation’ multiple times but did not bother to go in-depth to find out what it is. If you are someone who is in the business game or who is interested in such details, you might know this. Let us see what it is and how it helps in your business in the simplest way.
Bank Reconciliation: Definition
Bank reconciliation is the process of identifying, comparing, and matching your financial records and bank statements. Your company’s financial records must match its bank statements. Any discrepancies in it may lead to errors and complications.
How does Bank Reconciliation help in business?
Reduces the chances of errors
Reconciliation helps you to detect common accounting errors. There are chances for you to mention unpaid invoices as paid and so on. Such errors in calculation, addition, and subtraction can be detected and avoided using reconciliation statements.
Supports you in making financial decisions
Referring to your bank statements or account books separately cannot help you to summarize your transactions and balance. Even if you forget to enter any transactions to your account book, bank reconciliation statements might help you figure out the correct balance. Thus it supports making the right financial decisions.
Prevents theft from your account
As you use multiple methods of payment, you are prone to bank-related thefts. There are people who steal money from your accounts without any cards or cheques from you. But, any such unauthorized transactions and issues can be easily identified using reconciliation statements.
Is it necessary to reconcile your records?
Yes, reconciling your records is as important as anything else related to it. Imagine you have a profit of AED 50,000 in a month, and it is shown in the financial records, but your bank statement says that you have AED 47,000 only. There is a difference of AED 3000. While doing business you cannot be ignorant about even a single penny leaving or coming into your account.
Bank reconciliation statements enable you to summarize your banking and financial records. They verify that the payments and cash collections have been processed or not.