If you want to know what your company’s profitability is, you first have to finish the bank reconciliations because the quality of all other financial analyses depends on having completed bank reconciliations. The bank reconciliation is a foundational activity upon which all other tasks are built. Quite simply, you cannot know how your company is performing without accurately knowing where your cash is going and where it is coming from.
If cash is king, then the bank reconciliation is the king’s guard. It is the single most important task any accountant or bookkeeper performs. It should be completed frequently, no less often than monthly. Weekly bank reconciliations are better, and even daily if you have the resources in your organization to do so. They are also part of a robust internal control framework and provide important separation of responsibilities. In this way, you have a third trusted individual to review the transactions that are entered and approved by other trusted individuals, significantly decreasing the likelihood of fraud.
The bank reconciliation matches your sales to your customer collections. It makes sure you have a proper accounting of your cost of goods sold. It forces you to have a basic understanding of your company’s business, route to market, and major processes. Are your customers paying? It’s in the bank rec. Did that order for inventory actually get placed? If the payable is lingering on the balance sheet, you better check with your supplier. It allows you to catch reporting errors, unanticipated expenses, and account misclassifications. If you cannot perform a timely bank reconciliation in your company then you probably have bigger problems than you realize.
