As your small business grows, your internal control structure must grow with you and a sound control environment becomes more critical. One of the most important controls in a small business is preparing timely bank reconciliations at the end of every month, at a minimum. Bank reconciliations are a comparison of the Company’s records to the bank’s records. At any given point in time, there are likely to be reconciling items such as outstanding checks or electronic transfers. Without bank reconciliation, you may not have a clear idea of how much cash is available in your account. You might bounce checks and incur overdraft charges. With electronic check clearing, you don’t have much time to get funds into your account when you write checks. Bouncing checks could be damaging to your business reputation or may cause you to lose a key supplier if not fixed in a timely manner.
Designate a specific individual to perform monthly, weekly, or daily bank reconciliations depending on the volume of account activity. You must go through every transaction in your account and make sure you and the bank agree on the transaction and investigate any unusual items. The key is to keep a real-time tracking of accounting records and bank balances to protect against overdrafts as well as identify fraudulent activity in a timely manner.
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