Is Reconciling your Bank Account Really Necessary?
Sometimes I am asked, either by a client or another small business owner, if it is really necessary to have a bank reconciliation done each month. I always answer yes, and it is something that I insist upon with my clients.
There are multiple reasons to have a monthly, or at least quarterly, bank reconciliation for each bank account.
1. It catches errors. Let’s face it, errors happen. It is easy to miss a deposit from a sale, or incorrectly post an expense. Performing a bank reconciliation for each bank account is the best way to catch these errors.
2. Ensures that vendors received payment. Sometimes you may write a cheque to make a vendor payment, and that cheque remains outstanding for several months. It could be that the vendor lost the cheque, or it may have been lost in the mail (yes, that does actually happen). It is always best to be proactive and ensure that the vendor has payment to avoid essential service disruptions for your business.
3. Ensures physical deposits made it to the bank. Just like a cheque going missing, a bank deposit could go missing. If you don’t reconcile your accounts, then you may not realize that one or more deposits have not reached the bank account.
4. Catches bank errors. OK, this one does not happen very often. Banks have a lot of checks to ensure accuracy. But, once in a while, it does happen. Without reconciling your accounts, you may never know.
5. Audits. Audits can be stressful. If you have your account reconciliations up to date, they are less so. The bank provides a great third party verification of your revenues and expenses. Being able to pull a file with all your account reconciliations and hand it to the CRA is a great way to inoculate your business against the more disruptive effects of an audit.
Have you been reconciling your bank accounts? If not, then I would advise you to look into getting this done at least for the current fiscal year, and going forward.
Hope this provided some important insight.
Thanks.
