If you’re new to bookkeeping, you’ve likely never heard of bank reconciliation before, but it can be an important part of ensuring your accounting is accurate and up-to-date.
Bank reconciliation is the process of making sure your transactions match up with what you expect. In other words, if you compare your bookkeeping records to your bank statement, everything should match.
If the records don’t match, you need to find out why and correct the error.
There are four main reasons you should reconcile your bank account:
- Find and fix errors - the faster you catch a mistake, the less impact it has going forward
- Catch wrongful payments or fraud - regularly going through your bank statements is a good way to catch suspicious activity
- Keep an eye on how the business is performing - if you know your numbers, you can tell whether they’re where you expect them to be
- Get ready to submit your accounts - when you submit your accounts, you need them to be accurate
When reconciling your bank account, there may be times when the two sets of information don’t perfectly match. There are two harmless reasons why this might be:
- Card transactions have been made but not cleared yet, so there may be a bookkeeping record, but nothing is showing in the bank account
- Bank fees have been applied, but there’s no bookkeeping transaction for them yet
Although these two instances are easy to resolve, there may be times when more investigation is needed into why the records don’t match. Such as:
- Recording errors by either the bank or the bookkeeper
- Fraudulent activity, such as withdrawals being made which are not authorised by the business and therefore not recorded by the bookkeeper
If you’re not performing regular bank reconciliations, missing or fraudulent transactions can slip through and cause problems further down the line.
There’s no hand and fast rule about how often you should perform reconciliations. However, you should perform them before submitting any tax returns, which could be monthly or annually.
Keep in mind that it can be beneficial to reconcile more often so that you pick up on any errors that can slip through. Think of it this way, the more often you do it, the less far back you have to go to find any errors.
If you’re with Quickfile, we make the process easy. Have a copy of your bank statement handy and load up the reconciliation tool.
Need more information? Check out our help article: Reconciling your bank.