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  • Sharon Climo

The importance of regular bank reconciliations

Bank reconciliation happens when you compare your record of sales and expenses against the record your bank has. It’s how you verify your business accounting numbers.

1. Get bank records

You need a list of transactions from the bank. You could get that from a statement, from online banking, or by having the bank send data straight to your accounting software. If you run a current account and a credit card account, you’ll need both statements.

2. Get business records

Open your ledger of income and outgoings. This might be in a logbook, on a spreadsheet, or in an accounting software package. Some accounting software will pull in bills and receipts with the help of data capture tools and extract the data automatically.

3. Find your starting point

Find the last time the balance on your business books was the same as the balance in your bank account. Start the reconciliation from there.

4. Run through bank deposits

Make sure each deposit appears as income in your accounts. If something is missing, enter it. You’ll need to figure out if it was a sale, interest, a refund, or something else.

5. Check the income on your books

Each entry should match a deposit on your bank statement. If something is missing, find out why. A customer payment might have bounced, for example.

6. Run through bank withdrawals

All bank withdrawals should be recorded in your books. This includes things like bank fees, which you might not have accounted for yet.

7. Check the expenses on your books

Each entry should match a withdrawal on your bank statement. If not, find out why. One of your payments may not have cleared yet, or maybe you paid using cash or a different account.

8. End balance

After you’ve checked all the deposits and withdrawals, your business bank balance should match the totals in your business accounts. This will be the starting point for your next reconciliation.

How to do bank reconciliation the easy way

Bank reconciliation can be trying work. Switching between documents and comparing numbers isn’t everyone’s cup of tea. If you can’t spare the time or stand the monotony, there’s an alternative. Software will speed things up hugely.

How to use bank reconciliation software

Most banks can send transaction data directly to accounting software, like Xero, through a secure online connection. When you’re ready to do reconciliation, the software pulls up each bank transaction in turn and either:

. suggests a match with a corresponding entry in your accounts, or. asks what the transaction was for and enters the info into your accounts.

Schedule the time to do it every week or even every day. And set up a system that makes it quick and easy to grab the records you need.

If you have any questions or need assistance, please get in touch.   

We are here to help.

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