The reconciliation process can quickly get overwhelming if you fall behind on your bookkeeping. Here are five tips to make your bank reconciliation efforts more efficient, and less of a headache:
1. Keep Your Documentation Up to Date
Keeping good financial records is the first step to a smooth bank reconciliation process. Make sure you have all the relevant information and documentation ready before reconciliation.
Reconciling your books on a regular basis should give you an excellent view of your overall financial health. But without all of the relevant information, it’s impossible to get a clear picture. If you’re missing documents, try to track them down. Even something as small as a missing receipt from lunch could be the key to reconciling your bank statement.
2. Reconcile in Regular Intervals
All businesses should complete their bank reconciliations over regular intervals. But the frequency will depend on the nature of the business.
Some businesses, such as restaurants or retail stores, process a large volume of transactions daily — they should consider reconciling every day. Other businesses with a slower transaction rate, such as a small online shop, may only need to reconcile once a week or once a month.
Whatever the time frame, it’s imperative that you keep to a schedule. And remember, it might be tedious or confusing at first, but the more often you reconcile, the easier the process becomes.
3. Don’t Forget the Cash Register
If you’re a retailer, restaurant, or any business dealing in heavy doses of point-of-sale cash, you can’t forget about the cash register when doing your reconciliation. These types of businesses should consider doing a regular triple reconciliation of your accounting balance, book balance, and actual cash on hand. This will reduce the risk of a major accounting mistake, which will show up later on your bank reconciliation as a discrepancy.
4. Look for Common Discrepancies
Most of the discrepancies you’ll find on your bank reconciliation will be the result of a few common errors. Here are some tricks for quickly spotting and identifying these errors:
- Duplicate Entries – If you accidentally record an entry twice on your ledger, the discrepancy will be equal to the value of the entry in question.
- Missing Transactions – If you don’t account for a transaction, the resulting discrepancy will be equal to the amount of the missing entry.
- Misplaced Decimal Points – If you place a decimal point in the wrong spot within a number, the discrepancy’s digits will always add up to nine. This is because you’re essentially subtracting 10 percent from a certain value (X). This leaves us with 0.9(X), which will always be a multiple of nine, meaning its digits will always add up to nine. With us still? Here’s an example: if, instead of entering $368.00, you enter $36.800, the discrepancy will equal $331.20. Now try adding up the digits: 3 + 3 + 1 + 2 = 9.
- Digits Entered in Wrong Order – Another common mistake is to mix up the order of the digits. Let’s say instead of $720, you enter $702 by accident. The discrepancy would be $18. Notice anything familiar here? 1 + 8 = 9. Like misplaced decimal points, this type of discrepancy’s digits will always add up to nine.
Although it’s unlikely, it’s always possible that the bank is the one responsible for the discrepancy. If there’s an error in your books with no discernible explanation, give the bank a call. They may have some explaining to do.
5. Outsource and Automate
The larger your business grows, the longer your bank reconciliations will take. This is also true of all of your regular bookkeeping functions. If you’re a paper-based business, you’re already behind the ball. First, switch to an accounting software like QuickBooks – it will make your regular accounting, bookkeeping, and bank reconciliations far easier and more efficient.
But even while using a software like QuickBooks, bank reconciliations will still take up a good chunk of your time. As a business owner, your time is valuable. Hiring an outside bookkeeper to handle your bank reconciliation process will save you time and money.
Boxelder Consulting’s team of licensed accountants, bookkeepers, and CPAs can keep your books and reconcile them for you, so you can focus on growing your business. Reach out today for a free consultation.