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Bank Reconciliation

What is Bank Reconciliation and Why is It Important for Your Business?

25 May, 2023


Bank reconciliation is a method of double-checking your accounting. You do this by comparing your business accounts to your bank statements. Both sets of records should have the same information. By making a bank reconciliation statement, a business can find and fix any transactions or bookkeeping mistakes.

Understand bank reconciliation with an example, if a business sends a cheque that hasn't yet cleared, the business will be alerted about the transaction ahead of the bank. Likewise, the bank may have received cash on behalf of the firm and entered them into the bank's records before the company was aware of it.

Importance of Bank Reconciliation

Bank reconciliation is important because it allows businesses to find any mistakes in transactions that might explain why the accounting records and the bank statement don't match up. A bank reconciliation statement can also help find signs of possible fraud to protect the business from losing money.

Bank reconciliation is a way to make sure that the cash balance of your business is what you were assuming. If the balance in your books is different from the balance in your bank, your accounting team needs to look at both records carefully to find out what went wrong.

Bank statements are reliable for accurate expense records. You can get following benefits by comparing your books to accounts:

  • Bank reconciliation makes sure that all transactions and entries on the accounting records are correct.
  • Bank reconciliation statements help find frauds and stop them before it's too late.
  • A bank reconciliation statement is used to find out if there might be a delay in clearing cheques.
  • Record of all the money that came in and went out of your business will help you file tax returns. Mostly, small businesses in UK need accounting software for automatic bank reconciliation, as it helps owners to pay accurately calculated VAT returns on time.
Bank Reconciliation

Why Automation is Necessary for Bank Reconciliation

When reconciliation is done manually, mistakes are more likely to happen. There are many mistakes that can happen, like sending the wrong amount into the accounts. Either you spend too much time fixing these mistakes or you end up with wrong records of money.

Moreover, there may be times when company records and financial records don't match up, but you are not directly to blame. Some of these situations are when projects don't reach their milestones on time due to financial issues. If there is no way for the finance team to see this information in real-time, they won't be able to figure out why the data isn't matching up.

Nowadays, businesses are gradually moving away from manual accounting processes in favor of automated ones to improve accuracy. Automated data entry and statement reconciliation eliminate the possibility of human mistakes.

Accounting software can pull transactions from your bank, sort them into categories based on your own rules, and reconcile them all at once, saving you the time and effort that you would have spent keeping track manually. Some other benefits of using accounting software for bank reconciliation are:

  • Automated and Efficient

Accountants waste most of their time entering data, trying to figure out why things don't match up, and doing manual and repetitive tasks. By automating the process, bank reconciliation software lets you invest your time and efforts on more important tasks while improving accuracy and insights, tightening controls, and lowering audit risks.

  • Fewer Errors

Bank Reconciliation through software strengthens internal controls by allowing firms to examine how the process operates. It prohibits non-process activity and alerts for odd changes or actions. Reduce the reliance on human input by replacing it with automatic tracking. Automation also prevents costly errors and provides real-time alerts for issues.

  • Increased Openness and Audit Trail

The software saves history and reconciliations. It's useful for audits, compliance, and historical data. You may use these records to see how much something cost in the past, which might help you budget, and manages your company's finances.

Easily Reconcile Accounts with Moneypex Accounting Software

Moneypex accounting software connects to your bank securely, imports transactions from the bank gets rid of any duplicates, and saves the list for future records. 

The transactions are listed with the date, amount, description, and name of the person who paid and the person who got paid. Bank feeds are great for business owners and accountants because they don't have to enter data by hand anymore, there's less chance of making a mistake, and transaction list are always organized and accurate. Simply set up, connect bank accounts, and import transactions, Moneypex will categorize each transaction effortlessly to keep your records up to date. Get started for free or get a free demo from experts.

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Moneypex team is here to give you the best tips for starting, running, or growing your small business. Written for self-employed individuals and small business owners, Moneypex provides insights into the latest trends and expert advice.