Bank reconciliation allows banks to identify fraudulent transactions in a customer’s account when customers report that their records are not matching with the bank’s records.
Fremont, CA: Bank reconciliation refers to a process in which the bank balance as per the organization’s own records is matched with the balance according to the bank statement. The purpose is to make sure that figures in both the records are correct and are in agreement. It confirms whether the amount of money leaving the organization is the same as the actual expenditure.
Let us look at the advantages and disadvantages of bank reconciliation:
Advantages
• Fraud Detection
Bank reconciliation allows banks to identify fraudulent transactions in a customer’s account when customers report that their records are not matching with the bank’s records. On the other side, if customers do not monitor their bank accounts by reconciling it, the fraudulent transactions may escape their notice. Therefore, early identification of fraudulent transactions may help recover the money back and stop any such transaction from happening again.
• Accounts in Good Standing
Bank reconciliation helps customers keep their bank accounts in good shape. When people are aware of the accurate amount they have in the account, they are less likely to overspend money from that account. Keeping track of bill payment date can be difficult for the businessmen who live a hectic lifestyle. Therefore, to get rid of this, businesses usually go for automatic deduction of monthly bills from their bank account. Often these bill payments do not show in the records of businessmen. Hence, there are chances that the account either gets in an overdraft or misses a payment. To avoid such mishaps, bank account reconciliation is a good option.
Disadvantages
• Multiple Transaction
Those who run a big and growing business with too many transactions from a single bank account, bank reconciliation can become a headache because many transactions will create a long list of transactions to be checked. Besides, the more the number of transactions, the greater will be the confusion in matching them.
• Uncleared Checks
Often businesses face difficulties in bank reconciliation when creditors do not clear a check given to them, which means creditors do not present it before the bank for the payment. Therefore, the account balance stays higher than the amount in the records, creating a mismatch in reconciliation.
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