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Reconciling the Bank Account After Purchases or Sales

Reconciling the Bank Account After Purchases or Sales
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  • 0:01 Maintaining Accuracy
  • 0:49 Why Bother?
  • 2:04 Process
  • 3:54 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Even if your accounting skills are top notch, you still should make sure that the books have been reconciled with the bank account in question. This lesson explains why.

Maintaining Accuracy

From balance sheets to master budgets, you do it all. Your accounting system has kept managers accountable, suppliers happy, and executives pleased since you first implemented it weeks ago. Simply put, you know where every dollar and every cent is going to and coming from in your organization.

At least that's what the books say.

You'd better watch out - a bit too smug of an accounting job and you may find yourself unable to catch an error that throws everything off. Luckily there is a solution, and one you should regularly do. By reconciling the bank accounts, you double check accounting books with respect to the actual bank accounts. In this lesson, we'll learn why it is so important to reconcile bank accounts with spending and earning statements, as well as how to do it.

Why Bother?

First, let's take a look at some reasons that should explain why it's so important to reconcile your statements.

People make mistakes. Whether it is you, a customer, a vendor, or the bank, mistakes happen in business. If you didn't check the accounts, you might not have a way of recognizing that the mistake happened. Bank reconciliation gives you the opportunity to go over the details of your spending again so that you can catch small errors before they become bigger ones.

Almost as annoying as errors are bank fees. Banks now make billions of dollars a year off of fees alone and are always looking for a way to sneak new ones in. In fact, some banks even charge for making deposits! As banks may not always send out an invoice whenever a fee occurs, you've got to watch out for these attempts to take more of your money.

Finally, there is always the chance that someone has done some unauthorized spending out of the account. While much of these is accidental in nature, such as a vendor charging too much for goods, there can be examples of fraud or theft. As a result, it's wise to make sure that whoever reconciles the accounts is not also the person who handles the routine bookkeeping. That would allow them to cover up fraud easily.

Process

So now that you're convinced of the need to reconcile the books, how do you do it? Before we get too far ahead of ourselves, you should do it at least once a month, or whenever large amounts of money enter or leave your possession. When it comes time to do it, however, you've got two choices.

If you have a solid suite of accounting software, chances are that the applications will simply do it for you. Give the program access to your bank accounts, and the software will analyze your books.

On the other hand, If you don't have such software, you'll have to go through your bank statements one at a time and match each expense and each credit up to a known expense or income source. It goes without saying-- I hope you saved your receipts.

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