A bank reconciliation is a process that allows you to check your record of receipts and payments in your accounting system against the record shown on your bank statements. For more information on bank reconciliations see our business guide “What is a bank reconciliation and why is it important”
In this article we will take you step by step through the process of a bank reconciliation.
Step 1 – Get your bank statements
You will need a list of transactions from your bank. This can be found in your printed bank statements, from online banking or by having your bank send the data direct to your online accounting software via a bank feed. Remember that if you have other accounts or a credit card account in addition to a current account, you’ll need statements for both so you can reconcile all separately.
Step 2 – Get your business records
Open your income and expenditure ledgers in your online accounting software, spreadsheet or books, or go to the specific reconciliation section in your accounting software.
Step 3 – Find your start point
Start from the last date you reconciled when the balance on your bank account was the same as in your business books. As said in Part 1, the more frequently you reconcile the easier it is to do and the more accurate your records will be. We would recommend at the very least monthly.
Step 4 – Check bank deposits
Make sure each deposit on your bank statement has a matching income entry in your accounts. Dates are very important and should be the same as on your bank statement. If there is anything missing, enter it along with a description (sale, refund, etc.) and the correct date.
Step 5 – Check income in your business records
Every entry in your books should be matched by a deposit in your bank account. If something is missing, you will need to find out why. Perhaps a payment hasn’t cleared yet? You may need to delete an entry if it has been entered twice or does not match the amount as per the bank statement.
Step 6 – Check bank withdrawals
Make sure each payment from your bank account is recorded in your books. This includes items like bank fees which you might not have added into your bookkeeping records. Again, paying attention to the dates. The most common date errors occur at the end of a calendar year end. For example, at December 2018 entries may be entered as the new year, so December 2019 and January 2019 dates get mis-posted as January 2018.
Step 7 – Check payments in your business records
Every expenditure entry in your business records should appear in your bank statement. If anything is missing you will need to investigate it. Often this is due to a delay in payments being processed through the bank account. You may need to delete or amend an entry in your records if it doesn’t appear on your bank statement or if the amount isn’t exactly the same.
Step 8 – End balance
On completion of the previous steps, the bank statement balance and accounting records should match. This point will then become the start point for the next reconciliation.
Bank reconciliation the easy way
Bank reconciliations can be tedious and time consuming. Constantly switching between documents and comparing numbers doesn’t appeal to everyone! Accounting software can speed up the process and reduce errors.
Most banks can securely send data directly to an accounting software system like Xero via a bank feed. This saves time manually entering transactions and helps to eliminate errors. The system then suggests how to enter the transactions to further assist with saving time. With the right software you can even do it on your smartphone.