Business owners need to go the extra mile for managing finances. Routine bank statement check-ups may not be enough to detect unintentional accounting errors. Ideally, every business, irrespective of its size, should perform bank reconciliation on a regular basis in order to keep on top of business accounting. Bank statement reconciliation is the process of matching the cash balance in your company’s bank account with that in your company’s ledger. Monthly review of bank statement reconciliation helps you keep an eye on your company’s cash flow. This also ensures that your financial obligations or any potential risks will not go undetected. You’ll notice any errors or frauds at the earliest – which would help you resolve the issue before it’s too late. One good idea would be to use professional accounting services and tools like the Xero accounting software for performing bank reconciliation. Here are some important things to know.
Why You Need to Perform Bank Reconciliation
Unlike your bank statement, your bank reconciliation statement shows up not only completed transactions but those in the process. Consequently, you can check your disbursed checks or online payments for any fraudulent activities well in advance. With a clear idea about where and when the money is coming or going, you can prevent overdraft. By the way, remember that overdrafts can cost you a significant amount in late fees and insufficient-fund fees. Sometimes, there could be duplicate transactions or other unintentional errors in the statement. Performing bank reconciliation would help you detect any such errors early.
Things to Know before Performing Bank Reconciliation in Xero
Performing bank statement reconciliation could be a time consuming task. However, if you use cloud accounting services or tools like the xero software, you can get the job done quickly. Here are some important things to know.
- Before you start reconciling your bank statements in Xero, you need to import all transactions from your bank account to your xero account. It is possible to import manually. However, if you want to save more time, consider setting up a bank feed for automatic imports.
- It is essential to provide details of certain transactions, including bills, expense claims, and invoices. You can also choose to provide details about some of your optional transactions, including bank account transfers, bill payments, funds received, funds spent, invoice payments and expense claim payments.
- Now you should check the total number of items ready to be reconciled on your dashboard in xero. Once you find all transactions have been imported to Xero, you simply need to click on the ‘Reconcile (numeric) items’ to start the process.
- The Xero software makes reconciling your bank statements easier in many ways. For instance, it starts by matching all transactions imported to the xero with all transactions entered in the software. When it cannot find a match, Xero looks for any similarity in the rules set up earlier by you, and may provide you suggestions for creating a transaction.
In some cases, Xero may not find a match or suggestion. Also, you may sometimes find an incorrect match or suggestion from Xero. In either case, you should look for or create a transaction.