Why are Bank Reconciliation Statements Important?
Bank reconciliation statements are significant for a number of reasons.
- They first aid in finding inconsistencies or inaccuracies in a company’s financial data. For example, a deposit recorded in the accounting records may not have been received by the bank, resulting in a difference between the two records. This inconsistency can be located and fixed by reconciling the bank account.
- Bank reconciliation statements aid in the prevention of fraud. Regular bank account reconciliations ensure that all transactions are recorded and that no unauthorized withdrawals or charges have made.
- Bank reconciliation statements are essential for cash flow management. Businesses may make sure that they have a precise picture of their cash position, which is necessary for making wise financial decisions, by periodically reconciling bank accounts.
Steps to prepare Bank Reconciliation Statements
It is simple to create a bank reconciliation statement by comparing the balance of a company’s bank account with its accounting records. The steps are as follows:
- Obtain the Bank Statement
The most recent bank statement should be obtained from the bank. Any transactions that took place during the selected period should be included in this statement.
- Update the accounting records
Any transactions that occurred during the selected period but weren’t yet recorded should be updated in the accounting records.
- Compare the two balances
Verify the closing balances of the accounting records and the bank statement. If they are identical, the reconciliation is complete. Next step should be taken if they don’t match.
- Identify and reconcile differences
Detect any transactions that appear on the bank statement but are not accounted for (or vice versa). Adjust the accounting records to reconcile the differences.
Some best practices to maintain accurate financial records
It is important to follow basic best practices to maintain the accuracy of financial data. They consist of:
- Reconcile bank accounts regularly
You should reconcile the bank statements monthly or at least once in a quarter.
- Maintaining accurate records
Ensure that all the relevant transactions are accurately recorded in the books of accounts.
- Maintain a system of Internal Controls
In order to prevent fraud and errors and maintain the accuracy and reliability of the financial records, implement the internal controls.
- Security of the records maintained
Implement the systems to maintain the financial records with utmost security, either in digital or physical form to prevent loss or theft.