What is a bank reconciliation?

Whether for personal or business purposes, we all use a bank account to track and facilitate our financial transactions. 

To ensure all transactions are accurately recorded, one should routinely perform reconciliations between their bank account statements and business’s financial information.

What exactly is a bank reconciliation, and how do you perform one for your business bank account?

Bank reconciliation defined

A bank reconciliation is a process in accounting where a company ensures its business account transactions within their journal entries and ledgers are reconciled with the financial institution’s most recent bank statement.

Rectifying the bank statement against your business account’s financial information should happen monthly, as it is every month that you receive a bank statement. Your account statement will either come in the mail or be accessed online, depending on your banking preferences. This bank statement is a record of all transactions your company made that month.

You don’t necessarily need an accountant or financial professional to reconcile your statements. As the small business owner and account holder, you can rectify the records yourself. Check out this guide on small business bank accounts to learn more about banking for your business.

Transactions to look out for when reconciling

When reconciling your financial statements with the bank’s reports, you must verify that all stated transactions are accurate. The amount of money your company has spent in that fiscal period should match the bank’s numbers.

When performing bank reconciliation accounting, here is a list of transactions you should keep an eye out for:

• Deposits: Ensure all money deposited into your cash account shows up as income. Every deposit made in your business should be accounted for in your bookkeeping records. Double-check your accounts receivable and ensure there are no deposits in transit.

• Withdrawals: Every withdrawal should be recorded in your books and should correspond with a withdrawal in your bank statement. Double-check your accounts payable.

• Transposition Errors: One of the most common mistakes in accounting is switching up the numbers when writing checks or recording figures. Therefore, always examine your checks against your records to verify your numbers.

• Bank Fees: Always check your accounts’ monthly fees as incurred by the financial institution. Make sure you understand the bank services attached to your account so you do not incur hidden fees.

• Fraud: Examine all transactions on both your bank statements and business records to verify that every charge is one you made or recognise. If unknown charges show up on your account, someone could be using your bank information without your knowledge.

• Compare End Balances: Once everything else is checked and accounted for, you will want to go over your end statement balance on both your business records and bank documents to ensure all numbers add up accordingly.

This end balance will be your starting point for the next period’s reconciliation.

Cash flow management can help your business keep track of its bank account’s ins and outs to make the bank reconciliation process more manageable.

How to Perform Bank Reconciliations

The best way to perform bank reconciliation is to sit down with your business records and bank records for the specified accounting period. Your business records could be your accounting ledgers, journals, or accounting software you use to track your income and outgoings.

Once they are side by side, you can systematically go through each transaction to ensure everything matches. Always examine your end balance last, as this will be your starting point for reconciling the next accounting period. Bank reconciliation accounting should only take a few hours at most each fiscal period, as long as your record keeping is up to date and accurate.

Stay on top of your business’s financial health with QuickBooks reporting functions to make your reconciling process as straightforward as possible. 

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