Why Bank Reconciliation Is Significant for Small Business Accounting?
Not reconciling bank is one of the bad habits small business owners must ditch to ensure business success. Regularly bank reconciliation is critical for your small business to detect errors, prevent fraud and verify cash flow. If you are new to bank reconciliation or unable to do it properly, accounting firms in Dubai can assist you with this key task.
Entrepreneurs may think of preparing bank reconciliation statements as a mundane task or a time-consuming process. However, performing a bank reconciliation is much more than that. In this blog, we will discuss what is bank reconciliation, how to prepare a bank reconciliation statement and how often you must do a bank reconciliation for your company. Keep reading to gain valuable insights:
What Do You Mean by Bank Reconciliation?
If you haven’t done bank reconciliation for your company yet. Let us explain it to you. Bank reconciliation is a critical accounting process where the companies match their bank statements with the transactions recorded in the financial records. By reconciling bank statements with financial statements, an organisation can confirm that payments have been processed and cash collections have been deposited into a bank account.
A bank reconciliation statement outlines the deposits, withdrawals etc. that affect a bank account for a specific period. Bank reconciliation statements are useful to businesses as it helps them to eliminate possible errors in transactions or bookkeeping. Businesses use it as a powerful tool to thwart fraud. Accounting companies in Dubai can equip you with more details on bank reconciliation statements.
How Often Should You Perform Bank Reconciliations?
Accounting firms in Dubai advise you to perform bank reconciliation at least once a month. Most businesses carry out bank reconciliation after the end of a month as banks usually send monthly statements at the end of the month, which can be used as a basis for reconciliation. However, businesses should reconcile their bank account every time they get a statement from the bank, whether that is weekly, daily or at the end of the month as businesses can nowadays easily access their bank statements through online banking facilities. If your organisation is struggling to do bank reconciliation properly, outsource it to companies providing accounting services in Dubai.
Why Should You Do Bank Reconciliation?
A bank reconciliation statement helps you to identify and explain the differences between the entries in your accounting system and the corresponding transactions outlined on your bank statement. Here are some compelling reasons why you should do bank reconciliations regularly:
- You can identify errors such as double payments, missed payments, calculation errors etc.
- Bank reconciliation helps track and add bank fees and penalties to the accounting books
- Businesses can detect fraudulent transactions and theft
- You can keep track of accounts payable and receivables of your business
- Regularly doing reconciliation helps you identify subscriptions that were meant to cancel and bank and credit card fees you may not realize you are being charged
- It will let you know your company’s exact cash flow position
- Bank reconciliation helps businesses to identify possible delays in check clearances
How to Prepare a Bank Reconciliation Statement?
Finance and accounting teams in an organisation usually execute the following steps to prepare a bank reconciliation statement:
Step 1: Compare the bank statement with the general ledger
Step 2: Adjust the general ledger
Step 3: Adjust the cash balance
Step 4: Compare the balances and Add Journal Entries if Required
What Are Common Problems with Bank Reconciliations?
Businesses may encounter some challenges while performing bank reconciliations. If the reconciliation is infrequent, it will be tougher to address problems when they arise, as the required information may not be readily available. Furthermore, the possibility of a mismatch emerges when transactions are not recorded promptly and when bank fees and charges apply. You can easily navigate such challenges by hiring the best accounting firms in Dubai, UAE.
Consult with the Top Accounting Firms in Dubai, UAE
You can make better business decisions by doing regular bank reconciliations as bank reconciliation statements can be used to detect errors, omissions, and fraud. However, small businesses with fewer resources can hire accounting firms in Dubai such as Jitendra Chartered Accountants (JCA) to perform efficient reconciliations. Outsourcing accounting services in Dubai is the best solution for businesses as they can avail of a wide range of services under a single roof such as bookkeeping, budgeting, audit, ESR, AML, UBO, corporate tax, VAT return filing etc.
JCA is a leading accounting company in Dubai with more than 20 years of experience. We have served clients from all industries including retail, manufacturing, and e-commerce. JCA has a highly qualified team who can look into your specific accounting or tax issues and come up with a robust solution. Make accounting hassle-free by availing of JCA’s accounting & bookkeeping solutions.