and when they happen. The bank reconciliation checks that you have accounted for all transactions. Anything that shows on your bank reconciliation that isn’t in your accounts should have corresponding paperwork that has been overlooked. Anything that is in your accounts but does not show on your bank statement should be investigated.
There is a reason that larger companies “close down” their accounts each month. By going through an exercise of making sure that all invoices, purchases and expenses have been added to their accounts system and then checking those transactions against their bank statement they are then able to generate reports on vital information about the health of their business and to create a cashflow forecast for the coming month. This is something that every business should be doing, not just larger ones!
The reports generated will include:
Also known as the Aged Creditors Report or Aged Receivables Report. This is a list of all invoices that have not yet been paid. Usually the report is split into periods or months, which shows what is currently unpaid but not overdue, and then what was due to be paid during the last month, and the previous month and finally anything older. These customers can then be contacted to request payment be made.
Also known as the Aged Debtors Report or Aged Payables Report. This is a list of all purchases that have not yet been paid. Again it will usually be split into periods or months. With this report you will know which of your suppliers need to be paid during the next month.
It is important to know if any cheques have been raised but not yet cleared the bank. Your supplier will have up to six months to cash a cheque so to avoid any nasty surprises you need to know which cheques remain uncashed as you move into the next month.
When you have all of the above information you can create your cashflow forecast. This is basically a summary of how much money you have in the bank, how much money you are expecting to receive and how much you need to pay out over the course of the month. This will then give you your available funds so you know how much money you can afford to spend, regardless of what is currently sitting in your bank account.
How often should you reconcile the bank?
It depends on the size of your business and how many transactions you have. Larger firms will reconcile every day, some businesses once a week and others once a month. It is important that it is done at least once a month, if you leave it any longer it will become more difficult to track errors.
Jamie has spent many years working in administrative roles, she has also spent time as a stay at home mum and now loves the flexibility of working from her home office and being available for her family whenever they need her.