If you’re in business, you’re required to keep books and records. Those books and records need to accurately reflect the income and expenses of your business. Seems simple, right? But as Tax Season is now here something I (and most tax professionals) see from small business owners is that they reconcile their checking accounts once a year rather than each month.
It’s not hard to balance the checkbook. Every month in QuickBooks I do it, and I’ve never seen an error…until this month. An invoice I paid for $50.00 got recorded on the bank statement as $60.00. What’s humorous about it is that my bank provides a picture of the cleared check. Not only was this an electronic payment (that generated a check), it clearly shows “Pay “FIFTY and 00/100.” When I called the bank they apologized and immediately corrected their error.
Mistakes happen, but there’s a more important reason to look at your bank statement. Suppose that you’re not the only person who writes checks from your account. Perhaps someone embezzled funds from you. Twice in the twenty years I’ve been a tax professional I’ve seen this. In the first instance, there were some checks not in the bank register. In the second case, the person doing the embezzling also balanced the checkbook. (Hint: Except for sole owners of businesses, people who can write checks should never balance the checkbook.) One month he was out with the flu and the malefaction was discovered.
There’s a cliche, “garbage in, garbage out.” With financial records, you need your inputs to be accurate. That means you need an accurate bank statement. Take the time to balance your checkbook each month.