Making mistakes with your accounting can lead to more than just embarrassing situations when checks bounce or collection calls are made to companies that have already paid their bills. Performing bank reconciliations helps you spot fraud and reduce the risk of transactions that can cause late fees and penalties.
Error Detection
A bank reconciliation helps you spot accounting errors common to any business. These mistakes can include addition and subtraction errors, double payments, lost checks and missed payments. You might have recorded an invoice as paid in your general ledger, but a bank reconciliation might reveal you forgot to write the check. At times, your bank might make an error in your favor. You will be liable for returning that money, even if you’ve already spent it.
Fee and Interest Tracking
Each month, your bank adds any fees, penalties or interest payments it has applied to your account. You might have overdraft fees, go under your account balance requirement or earn interest on your checking account balance. If you order checks or stop payment on a check, you might incur a fee, depending on the features of your account. A monthly bank reconciliation lets you add or subtract these amounts in your general ledger.
Fraud Detection
You might not be able to stop an employee from stealing your money once, but you might be able to prevent a second theft. Bank reconciliations help you spot ongoing fraudulent transactions. Have an independent party perform your reconciliations to prevent an accounting employee from continuing to falsify your general ledger and reconciliations.
Receivables Tracking
Payments due one month might not appear on your bank statement until the next month if you receive the payments near the end of the month. In other instances, you might accidentally leave one check off a deposit slip if you are filling out a slip with many entries. As you perform a review of last month’s receivables, you might not see a payment that was made and contact a customer to ask where the payment is. Bank reconciliations confirm all of your receipts, helping you avoid awkward situations or identifying the entry for a receipt you didn’t deposit.
Transaction Status Updates
Just because you’ve sent a payment doesn’t mean the payee has cashed the check or even received it. A bank reconciliation statement might reveal that a check you wrote months ago still hasn’t been cashed. Uncashed checks can cause you to believe you have more money to spend than you do. Bank reconciliations allow you to spot checks that haven’t been paid and contact the payee to urge her to cash the check. In some instances, the payee will ask you to stop payment on -- and reissue -- a check that didn’t arrive or was lost or stolen.
