The term “bank reconciliation” refers to the process of comparing a business’s internal financial records with external bank records. The purpose of the bank reconciliation process is to determine whether there are any discrepancies, inconsistencies, or anomalies between the two sets of records. If so, it may be an early indication that fraud has occurred, or that an error has been made.

In addition to helping business owners detect and address fraudulent transactions, bank reconciliations also make it easier to identify and prevent financial problems before they arise; for instance, bank reconciliation can prevent a check from bouncing or an account from overdrafting. The Roseville tax accountants of Cook CPA Group explain some California bank reconciliation basics for small businesses—including what to do if your account doesn’t balance.

What is a Bank Reconciliation Statement and Why is it Prepared?

Bank reconciliation statements are crucial financial tools for any business. From construction companies to law firms and breweries, all businesses can benefit from regular reconciliations. Conversely, all businesses can be harmed by the failure to prepare reconciliations. That’s because bank reconciliations serve a few critical purposes for any type of company or industry. Reconciliations can help ensure that your business:

  • Avoids bank fees and charges
  • Detects and avoids fraud in a timely manner
  • Accurately monitors the amount of funds available
  • Allocates its financial resources more effectively
  • Avoids bounced checks or overdrafting
  • Manages outstanding checks properly
  • Enters and tracks transactions correctly
  • Detects any errors that might have been made by a bank or financial institution
  • Keeps borrowing and credit utilization at an appropriate level
  • Improves collections actions by banks

Detail and precision are key when performing bank reconciliations. In addition, the timing of your reconciliations is important. Depending on how large your company is and how many transactions you typically conduct, it might be appropriate to perform reconciliations on a monthly, weekly, or even daily basis. If your business has been going through a period of rapid growth, it may be time to consider increasing the frequency of your reconciliations.

There are many factors to consider – and many details to analyze – when planning and performing bank reconciliations in California. While it is possible to perform a bank reconciliation yourself, make sure your company is in good hands by hiring an experienced small business accountant to review your records and assist you throughout the process.

What Happens If a Bank Reconciliation Doesn’t Balance?

If the balance on your internal records doesn’t match the amount on the external bank record, don’t worry. It’s not necessarily fraud (though that’s still a possibility). The first thing you should do if there’s a discrepancy between the records is to do a simple check for clerical errors. It’s entirely possible that two numbers have been transposed, or that a comma or decimal has been added to the wrong place.

If there or don’t seem to be any errors (or if you’ve corrected them and you’re still seeing a disparity between the accounts), then you’ll have to run a reconciliation discrepancy report. Your California tax accountant can help you do this. A reconciliation discrepancy report will do the following:

  • Ensure that changes in reports have been accounted for
  • Check that all interest and fees attached to charges have been included
  • Make sure that added, deleted, or modified transactions have been added
  • Monitor for duplicate transactions
  • Maintain consistency between accounting periods

If, after having done a reconciliation report, you’re still finding discrepancies between your internal financial record and external bank records, then there might be cause for concern. It could be that there are fraudulent charges on your account, such as illegitimate payments, payments to unauthorized parties, amended payments, or identity theft. If this has happened to you, contact your bank immediately. Doing so as soon as you find out will prevent further damage and will allow the bank to restore as much of your account as possible.

After you’ve made a call, send a letter to the bank through certified mail detailing the false charges, when you found them, and who you spoke with on the phone. Then, make sure that all your checks are present and, if they aren’t, issue a stop payment order with the bank. If your identity has been stolen or an unauthorized entity has been involved in the account, ask your bank to close the account and open a new one immediately and alert your credit report agency.

California Tax Accountants and CPAs Serving Roseville and Sacramento

If you need assistance with a bank reconciliation for your small business or suspect fraudulent charges in your account, don’t hesitate to get in touch with our California business tax accountants. Cook CPA Group is committed to assisting people in the Roseville area with auditing services that will allow them to feel secure about their business’s finances. To learn more about what Cook CPA Group can do to help you and your business, contact us at (916) 260-2323 for a free consultation or visit our website to schedule an appointment.