Bank reconciliation may seem like a scary term. Don’t be afraid! It’s accounting jargon to make a process seem way more complicated than it actually is. Let’s break it down.
Bank: an institution that handles your business’ money.
Reconcile: To bring into agreement or harmony.
And just like work-life harmony, we want to seamlessly integrate our bank records with our business’ accounting records, and feel good about it.
Now what does this mean for your business?
A Bank Reconciliation is the process of comparing your accounting records and matching them with your transaction records on your bank statement.
So in reality, it’s not scary at all. In fact, it’s a healthy (financially) habit, just like brushing your teeth. That’s why dentists recommend we do it at least twice a day. We should be doing more good things, more often. The same principle should apply to your business’ finances.
You should dedicate time to reconcile your bank statement at least once a month.
Unfortunately, accounting isn’t that easy and there are a few more details you should know.
What is a bank reconciliation?
If there is one absolute truth in accounting it’s that errors happen. Invoices get forgotten. Receipts get lost. Anything can (and will) happen.
Bank reconciliation adds a valuable layer of error detection and provides you with the ability to correct those errors in your accounting software. If you’re not currently using one, you will unfortunately have to manually compare records with your current bookkeeping system.
Reconciling a bank statement simply means comparing your accounting records and matching them up to the corresponding transaction as listed on your bank statement.
Simply put: how much money is recorded in your accounting system versus what’s in the bank.
If you notice that your numbers don’t match up, you should investigate further. After all, nobody wants to learn that they overpaid for something.
Doing a monthly bank reconciliation will help prevent these accounting errors in the future and grow your bookkeeping abilities.
How to do your own bank reconciliation
So how do you do it for yourself?
As we mentioned, on a monthly basis, take your business’ bank statement and match the transactions listed against the records in your accounting software system.
If an item does not match up, or is in one system over the other, then you know something is missing. Now, you have an idea of where to look and apply a solution.
It’s like the old matching games we used to play as kids.
When should I prepare my own bank reconciliation
If you’re using TrulySmall however, completing bank reconciliations is even faster.
When you connect your bank in TrulySmall Accounting, you get a secure, real-time display of your bank feed’s transactions within your accounting software. This enables you to check any transactions and reconcile your bank all on one-platform, saving you time at the end of a busy month.
What happens if your bank reconciliation does not match?
Don’t panic. Let’s see what our records say first.
In some cases, your clients may be late on a payment, you forgot to deposit a cheque, or you incurred a hidden service fee, unfortunately it happens.
Additionally, when you’re dealing with cash and credit, it’s easy for numbers to misalign as we all lose receipts every now and then.
There are a lot of possibilities why our numbers won’t match in our bank statements and accounting records. That happens from time to time. The best thing to do in those situations is investigate them further to ensure you’re not overpaying in key areas of your business.