The Power of Monthly Bookkeeping:
Unveiling the Hidden Truths of Bank Account Bookkeeping
In the dynamic world of business finance, it’s essential to go beyond surface-level numbers and uncover the hidden truths that lie within bank account balances. While relying solely on these balances may initially seem reassuring, it’s important to embrace the power of monthly bookkeeping. By delving deeper into your financial records, you can unlock valuable insights that contribute to informed decision-making and foster long-term financial stability. In this blog post, we will explore how monthly bookkeeping unveils the hidden truths of bank account bookkeeping, ultimately empowering small businesses to thrive and flourish.
Here are some aspects that could be “hidden” in a bank balance and may not be immediately apparent when relying solely on account balances for assessing financial security:
- Outstanding Payable Checks: When reviewing a bank balance, it’s crucial to consider any outstanding checks that have been issued but not yet cleared. These checks represent pending payments that will eventually reduce the available balance once they are processed by the recipient’s bank.
- Collected Sales Tax: If your business collects sales tax on behalf of the government, the funds held in the bank account may include sales tax amounts that need to be remitted to the tax authorities. While the funds are in the account, they are not available for other business expenses.
- Customer Deposits: In certain industries, businesses may receive customer deposits for future goods or services. While these deposits increase the bank balance, the corresponding work or service has not yet been completed. Therefore, these funds are not truly available for day-to-day operations.
- Outstanding Customer Invoices: On the other side a “poor” bank balance does not necessarily bad financial health. It can mean that there are outstanding, unpaid invoices that have not been paid by customers. Consider developing a receivable policy that ensures you’re paid in a timely manner.
- Loan Repayments: If your business has taken out loans, part of the bank balance may be allocated to upcoming loan repayments, reducing the available funds for other business needs.
- Accrued Expenses: Certain expenses, such as salaries, taxes, or rent, may accrue over time and be payable in the future. Although they are not reflected in the current bank balance, they represent financial obligations that need to be accounted for.
Remember, a bank balance provides just a snapshot of your finances at a specific moment in time. It reflects the amount of money you had on that particular day, at that specific hour. However, it is crucial to understand that this number alone does not paint the complete picture of your financial situation.
Your business’s financial health is vital for growth
Bank account balances only scratch the surface of your business’s financial health. Embrace the power of monthly bookkeeping to unveil hidden truths, make informed decisions, optimize cash flow, and maintain compliance. A financial statement that is key to really understanding your cash situation is the balance sheet. We’ll dive into how to read a balance sheet in our next blog post!