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.