Bank reconciliation is referred to as the process where the transactions in one’s internal accounting system are compared with the actual bank or credit card statements. This is true for the accounting in all companies including that for real estate accounting.
What’s bookkeeping?
Bookkeeping is the process where every transaction is being recorded, whether it be on some bank statement, or credit card statement or even some other source such as cash. Then categorization is done of that transaction for reporting needs. Now, the bank reconciliation will be done to see that all transactions are accounted for appropriately for some given time period.
It is suggested to choose outsourcing real estate bookkeeping for the real estate companies. Outsourcing bookkeeping service is done to ensure proper maintenance of all records, thereby allowing correct results during bank reconciliations.
Importance/reasons of bank reconciliations
The importance of bank reconciliation is to ensure proper management and monitoring of cash flow. Here are some points representing the need to do bank reconciliations.
For identifying frauds
Identification of signs of fraud is one of the main reasons for reconciling transactions in a bank account. This will give answers to many questions such as whether or not the checks were issued with authorization, and whether or not there were any unauthorized transfers out of the account.
For validating data entry
It helps in finding any irregularities, like the entry of wrong amounts, data entry errors, or the presence of duplicate entries. It will help in easily finding out the errors that may have occurred during other accounting processes.
To confirm financial statements’ accuracy
There can be some mistakes by banks too. So even the bank’s statements can be viewed and corrected in case of any discrepancy found. It will confirm that the financial statement is the same as the bank’s statement. This will keep things under control and prevent them from getting out of hand.
For accuracy in tax reporting
The correct information is also required for generating a correct tax return. Bank reconciliation will provide all necessary data correctly in the end, thereby letting you enjoy freedom from any mistakes during tax return filing.
For maintaining control over theft
It will also be useful to identify any theft being done to your company. It will further prevent all chances of theft by employees and other people.
Thus, bank reconciliation will serve its objectives of catching fraud before it’s late and catching other issues or errors, such as bounced payments and miscellaneous fees. It will also support you with accurate transactions as well as ensuring transactions’ existence.
Areas that can be impacted due to non-performance of the bank reconciliation
There can be missing expenses, impacting the performance metrics and tax reporting. Sales tax implications may arise when there’s missing sales tax collected on the revenue or incurred on the expenses. It may lead to penalties or interests payable when there’s misreporting of sales tax numbers to tax authorities. Furthermore, there can be personal tax implications as well as issues with cash flow management.
Bank reconciliations should also be done at the required frequency. It may be annually or monthly, or even weekly or daily in some cases. Outsourcing real estate accounting is a safe way to assign the accounting tasks to some reliable company, as it will ensure correct and error-free results in the end.