Guide to Bank Reconciliations and Catch-Ups
What is bank reconciliation or catch-up?
A bank reconciliation is the process of matching the balances in an organization’s accounting records for a cash account to the corresponding information on the bank statement. The end goal of this process is to be able to determine the differences between the two and make changes to the accounting records where necessary. The information on the bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month.
Companies simply cannot function without bank reconciliation. It should be a part of a finance teams daily routine, but it often gets overlooked and pushed to the side.
What is a clean-up or catch-up?
An accounting or financial clean-up/catch-up goes hand in hand with a bank reconciliation, and it consists of getting of a business’s books and records up to date. Catch-ups are important, since a business’ books are needed both internally and externally. Messy financials lead to poor business decisions.
It allows businesses to stop worrying about being behind. It can include:
- Reconciling cash accounts with bank statements
- Reconciling business credit card
Why are business not “caught up”?
- Often, turnover necessitates a catch-up. If a smaller business loses someone on their accounting staff, it is very easy to fall behind on basic reporting and account reconciliation.
- Another common situation is, for a business that does not have a full staff dedicated to the accounting work, to not worry about their financials until an inciting event occurs, such as a tax filing deadline.
- Many businesses may procrastinate taking care of their financials if they are meeting the barebone essentials, such as making payroll and paying bills on time
Frequently Asked Questions for Bank Reconciliation
1. How often should you be reconciling?
In general, businesses should do bank reconciliations at least once a month. This process typically happens after the end of the month because banks send monthly statements at the end of the month that can be used as a basis for reconciliation. Ideally, you should reconcile your bank account each time you receive a statement from the bank, whether that is weekly, daily or at the end of the month.
2. Why should you do bank reconciliation?
There are many advantages to bank reconciliation, but some of the advantages are that you can:
- Detect errors such as double payments, missed payments, calculation errors etc.
- Track and add bank fees and penalties in the books
- Spot fraudulent transactions and theft
- Keep track of accounts payable and receivables of the business
If there is very little activity in a bank account, then there is really no need for a periodic bank reconciliation, and you should reconsider why that account is open in the first place.
3. What is the purpose of bank reconciliation?
Some of the advantages of a bank reconciliation and clean-up are:
- Detecting errors such as double payments, missed payments, calculation errors etc.
- Tracking and adding bank fees and penalties in the books
- Spot fraudulent transactions and theft
- Keeping track of accounts payable and receivables of the business
4. Do I need to reconcile all my bank accounts?
Any accounts that are active should be reconciled at month end, even if there are only a few transactions.
5. What if I cannot reconcile the two balances?
If you have entered adjustments for both your bank balance and your General Ledger balance, and there is still a bank reconciliation problem, you will need to continue to review both your bank statement and your General Ledger to locate the missing item. This may require going back a few months in order to find the issue, which is why reconciling each month is crucial.
How We Can Help
At NOW CFO, we want all our clients to have financial data that is accurate, timely, relevant, and insightful. Bank reconciliations and catch-ups are necessary. If a business is not caught up on their books, none of the future reporting can be accurate. Something as important as a cashflow forecast cannot be built an if you are behind on your financials, which is why our consultants will always be sure that you and your financials are up to date and accurate.
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