Because it’s absolutely necessary! Check out the 4 reasons below.
1.TO IDENTIFY AND RESOLVE ERRORS
This could include encoding errors on either the bank OR business side, a transaction that double posted, unexpected fees, misread receipts, check printing errors, etc. The earlier you discover an issue (generally) the easier it is to correct.
2.TO DETECT FRAUD
The only way to identify fraudulent transactions is to see them when they hit the bank. Whether it be a compromised credit card or an intentional action within the organization, the reconciliation process is what will expose it. The bank statements will show the transaction which will lead to an investigation/follow up. Again, the earlier you discover an issue (generally) the easier it is to address.
3.TO MONITOR CASH FLOW
Reconciling your statements consistently gives you the opportunity to see how much cash is actually available in your accounts as well as the relationship between when money enters your business and actually hits the bank. This allows you to create proactive collection and payment processes.
4.TO AVOID SURPRISES
This could include checks that vendors may have held for awhile before presenting to their bank or payments that may have been lost in the mail. When statements are reconciled consistently these types of transactions should stand out. Use the opportunity to be proactive; avoid late fees and add value to the relationship with your vendors.
Best Practice: Reconciliation should be done at least once per month (some find it beneficial to do more often) by someone who is not responsible for issuing checks.