Bank reconciliation is one of the essential ways of maintaining control of your business. Regardless of the size of your business, it is a crucial part of the accounting system in Malaysia.
What is Bank Reconciliation?
This is a process that compares the account balance found in a company’s record book with the balance reported by the financial institution for the same account. If any discrepancy is observed, it is rectified.
There are various reasons why businesses need to embrace bank reconciliation. It may look like a tedious and mundane task, but the benefits are enormous in the long run. Continue reading to find out more.Prevent Fraud
1. Prevent Fraud
In business, there are likely to be attempted by unauthorized persons to intrude into your finances. Fraud and scams have cost many businesses a lot of money, even bankrupting some. According to a survey run by Statista, 22% and 14% of Malaysian businesses have fallen victim to cybercrime and accounting fraud, respectively.
Early detection is the key to preventing significant damage. Reconciling your company’s financial records regularly against your financial institution’s most recent bank statement enables you to quickly spot any irregular financial transaction. Once caught this way, you can find solutions to forestall similar problems.
2. Keep Tabs on Your Cash
Cash is vital to keep your business sailing. Any misappropriation can have daunting ramifications. Thus, the most important task is always to keep your eyes on your cash. One of the effective control mechanisms to protect your cash is regular and thorough bank reconciliation.
Reconciling your company’s books with your bank statements helps you safeguard your financial assets from unscrupulous elements. You will need to assign this task to a trustworthy employee. Bank reconciliation will unveil any irregularities and enable you to take action to nip any wrongdoing in the bud.
3. Save Money
Some things that cause a company to lose money are
human error, like fine print fees and subscriptions that have been unknowingly accumulating. If not noticed, money will drain away from the company silently and without bringing in any benefit. It could be months or years before these hidden fees are discovered.
Bank reconciliation is a tool businesses can use to uncover the subscriptions they are unknowingly being charged for. In the long run, money will be saved and able be channelled into beneficial endeavours.
4. Your Business Performance
It is hard to keep your business in good shape without keeping track of its performance. Determining your business performance will enable you to spot any shortfall and come up with countermeasures to keep your business balanced.
Apart from reconciling your bank account statement with your business entry book to prevent fraud and save money, monitoring your business performance is another reason bank reconciliation is essential. It would be best always to heck your bank account balances and see that it tallies with your company record book for these reasons. You can do it with the help of accounting software.
5. Ensure the Accounts Stay Compliant
One of the benefits of bank reconciliation is that it brings business owners up to speed with the exact amount they have in their accounts at various periods. Many companies overdraw their account when the decision-makers have very little knowledge of the balances. This can have significant consequences in the long run.
You will have absolute control over your bank account, avoid overdrawing, and spend only the right amount with bank reconciliation. The more you integrate bank reconciliation into your business, the more power you will have over your accounts.
6. Generate Accurate Balances
Not every transaction is cleared by a bank. This happens most often with check transactions. This can be difficult to catch in accounting, but non-cleared transactions like these can be revealed through bank reconciliation.
Most transactions can remain open at the end of a statement period. Through bank reconciliation, businesses will be able to identify which transactions have been cleared with the bank.
Any check that has not been cleared will be investigated to ascertain the actual cause. If payment has somehow been lost, you can start early to reissue the check before it accrues any late fees.
In a Nutshell
Reconciling your bank account with your internal account books every month is the key to identifying any error in your financial records and avoiding being caught by surprise. You not only gain short-term knowledge about the accounts, but you also gain the edge to understand better the trajectory your business is on. For more information about how Finanico could help with your bank reconciliation, feel free to get in touch with our professionals.