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What does your month end close process consist of?

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Why monthly bank reconciliation is imperative

In today’s business environment, knowing how much cash your business has readily available is critical to the success of your organization.  This starts with the bank reconciliation, which enables effective cash flow management.

Bank reconciliations compare a company’s records to their bank records, which authenticates cash activity.  The bank statement is the source document issued by your bank confirming cash movement for a specific time period.

There are several reasons why the bank reconciliation is imperative, but none is more important than the need to forecast cash flow.  Cash needs can arise from payroll, bill payments, or the payment for a capital project.

Cash is essential to the success of any organization; without an accurate measure of the current cash position, it is extremely difficult to plan for necessary cash outflows in the near future.

This is why it is crucial to reconcile a company’s accounting records with the bank statement.  Bank reconciliations are also useful tools in spotting fraudulent activity, missed payments, or unusual activity.

By reconciling the bank account, a company can compare the current bank balances with what the current books reflect.  For instance, if all incoming deposits or outgoing payments were to clear, how much cash would be available?

A good business practice is to do a daily soft reconciliation whereby the cash transactions are cleared based on daily bank activity.  

Then, when the monthly statement is available, a hard reconciliation can be completed showing actual cash flow movement. A good accounting month end close process is also suggested.

This way you can avoid any costly surprises as well. Regular bank reconciliations will keep you current, aware, and on the right path to making sound educated business decisions.

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Topics: Bookkeeping Business Advice Accounting procedures Accounting Methodology Cash Flow Management Accounting