How Does Account Reconciliation Work?
Balancing, or reconciling, your bank accounts represents an important financial management task. By regularly reconciling your records with those of the bank, you improve the accuracy of your bookkeeping, you assure that bank errors haven’t been made, and you also reduce the chance that you aren’t the victim of fraudulent transactions, such as those perpetrated by a forger.
The problem when reconciling bank accounts
But unfortunately, trying to reconcile a personal or corporation bank account with Microsoft Money can seem pretty daunting at times. On any given day, a comparison between what your records show is the balance in your bank account and what the bank’s records show will yield a discrepancy. And reconciling a bank account simply explains the difference between your records and the bank’s.
Locating Forgotten Transactions
In general, two factors explain the differences between the two sets of records: First, there are the transactions you haven’t recorded but that have been recorded by the bank, such as transactions you’ve forgotten to record as well as transactions for items such as bank fees and interest that you won’t know about until you see them on the bank statement. Second, there are the transactions you’ve recorded but that haven’t yet been recorded by, or cleared, the bank.
The process of reconciling any account involves looking carefully at both factors. For example, typically your first step is to look for and then record any transactions you forgot or didn’t know about before seeing the statement: cash machine transactions, forgotten checks, interest, and monthly service fees. (This step of looking for and then entering forgotten transactions can be particularly important if you’re using Microsoft Money to manage a small business’s finances–even a small corporation or small limited liability company can easily have hundreds of transactions a month in a bank account.)
Explaining Discrepancies Between Your Records and the Banks
Once you’ve done this, you then identify and total the transactions that you recorded but that haven’t yet been recorded by the bank, such as outstanding checks and deposits in transit. The total of these transactions should explain the difference between your recorded balance-this is what Microsoft Money shows-and the bank’s balance-this is what appears on the bank statement.
When the total uncleared transactions don’t explain the difference between your records and the bank’s, you need to repeat the two steps discussed in the preceding paragraphs. You’ve made a mistake in at least one of them.
Reconciling Corporation and Limited Liability Company Bank Accounts
If you’re reconciling a bank account for a small business that includes more people than just the owner and his or her family, you probably want to add one more step to the basic account reconciliation program: You should consider the possibility of forgery and embezzlement and look for evidence of either crime as you reconcile.
Specifically, if you do see forgotten transactions, you should consider the possibility that you didn’t forget the transaction. You should consider the possibility that some nefarious third person effected a transaction in a fraudulent manner (such as by forging a check).
The Pros and Cons of Corporate Bank Loans
The first thing that comes into a prospective business owner’s mind when sourcing for money to start up their business is to go to the bank. It’s convenient, safe and regulated, why would you go anywhere else?
But people must keep in mind that for most things in life, there are its pros and cons. Before you jump on the corporate banking business loan bandwagon, take a while to consider your options and make an informed decision.
The Advantages
Convenience and multiple loan options – Besides a standard business loan, banks can provide a selection of loan choices for you to consider. Even non-commercial loans that are able to be used for business purposes including personal and home-equity. What’s more is that there’s probably a commercial bank no more than 10 minutes from your house.
The bank has little to no control over how you spend the money – If the bank reviews your business plan and approves the loan to you, the money is essentially yours to do with as you wish. Since you are already in agreement with the bank on the interest rate for them to earn from you, they have little to no say what you do with the money. If you decide to use it all to travel the world instead of starting a business, well that’s your choice (although not a very good one).
This is a non profit sharing arrangement – Unlike business partners, venture capitalist funds or any other sources of capital, the bank is not entitled to any of your profits. Besides repayment of the loan plus interest, you do not need to split your profits between any other investors.
Interest rates may be low – The interest rates the bank can offer may be lower than other sources of financing such as credit cards and finance companies. Although not as low as borrowing from friends and family of course.
Commercial loans payments are often tax-deductible – You will need to check with your local tax department, but you may be able to get tax deductions related to the interest payments you are making on your business loan.
The Disadvantages
It may be hard to get a loan – Banks will probably require you to show them your business plan and convince them that your business has a chance of making a profit. If they don’t believe in your product/ service they could easily refuse you the loan. This is to ensure that when they loan out money, they are sure to get it back. Also, standard business loans are often limited to pre-existing businesses that have a financial history of success.
Application for a loan can be lengthy – Bank loans may require more information and a longer review process compared to other types of sources.
Collateral is usually required – A commercial institute usually requires collateral on the business loan, although this would probably not be required from other types of lenders. This may be quite risky if the collateral that you have to put up is your house or other family possessions.
You may not get all you ask for – Unlike a housing loan, which barely needs any persuasion to qualify for, you may not be able to get 80-100% funding for your business. The return on housing loans is so much better for banks that for a business loan, unless it’s quite small, you may only receive 75% of what you ask for. This varies from bank to bank.
So weigh your options before taking a corporate loan from a financial institution such as a bank, it may actually be better for you to find other sources of funding. Friends and family are always a good place to start. Just consider the pros and cons as laid out above and it will help you to come to an informed decision.
What Are Different Types of Savings Bank Accounts?
There are different types of Savings Bank Accounts. After providing the bank address proof, photo identity proof a savings account is opened. There are different types of savings accounts. They are as discussed below:
- Normal Savings Account: These accounts have no special features. They can be operated by maintaining a minimum balance daily or an Average Balance per quarter.For Government Banks the daily balance is 1000 rupees and for private ones the average balance per quarter is 5000 rupees.
- No Frills Account: These are mainly zero balance accounts meant for deprived classes of society. But these accounts come with lot of rules and regulations. Axis Bank, H D F C and Corporation bank are some institutions those offer No Frills Accounts.
- Salary Account: In these accounts employees’ salaries are deposited and hence they are zero balance. These accounts also come with overdraft facility that is calculated keeping the amount of salary drawn in mind.
Pension Account: In these account, pension is deposited and hence it is also zero balance. Axis Bank offers zero balance pension accounts.
Woman’s Account: Institutions like Axis Bank, Corporation bank etc provide special account or women keeping specific demands in mind.
Child Account: These are also zero balance in nature. They are structured in such a manner to inculcate the habit of savings in growing children.
Conclusion: Today Savings Bank Accounts come with so many features like ATM, better service, anywhere banking and even credit cards. H S B C bank offers free credit card to its account holders subjected to terms and conditions.