What is bank reconciliation? bookkeeper bedford, bookkeeping
Bank reconciliation means you have checked that the balance on your bank statement matches the balance you have in your business records. 
 
When the figures match, you can say your bank account is reconciled. 
 
If the figures don't match, your bank account is unreconciled. This means that some of your day-to-day business spending hasn’t been accounted for. 
 
You might have too little or too much in your bank account, but it’s important to know why 
Why should I reconcile my bank account? 
If your figures match, then you have healthy, up-to-date accounts and have confirmed that you have good processes in place to keep everything organised. 
 
Understanding your cashflow is essential to keep your business on the right track. You will have a clear idea of your profitability, tax position and any money you owe. You need this information to make good business decisions. 
 
If your bank accounts are unreconciled, Her Majesty’s Revenue and Customs inspectors might think you have concealed some income and that you should pay more tax. 
 
The longer an account remains unreconciled the harder is it to track down the problem. If you leave it until year-end your bookkeeper or accountant will need to work out what has happened and that will cost you money. In the meantime, you won’t have an accurate picture of how your business is performing. 
 
Common bank reconciliation problems 
If your figures don’t tie up, some of the most common causes are: 
• transfers between bank accounts that haven’t been recorded 
• interest paid into your account that you haven’t included in your records 
• bank charges you have paid that haven’t been recorded 
• mistakes, such as a £1,000 transaction being accidentally entered as £100. 
 
How bank reconciliation works 
Of course, the first thing you need is your bank statement. Online banking can streamline the process by sharing your statement with accounting software like Xero, using a secure online connection. If you have a business credit card, you’ll need to add that statement too. 
 
You will be keeping records of all your business expenses and income – it might be on paper, in a spreadsheet or in an accounting software package. 
 
You will need to start the reconciliation process at a point where your back account and records match, such as the beginning of your financial year. 
 
Then it’s just a matter of checking all your deposits and withdrawals and making sure they match your records. That sounds easy, but if there are any discrepancies, you will need to work out why. 
 
It could be something simple, such as a payment waiting to clear or that has gone in to a different account. These are easy to check because the amounts will be the same. 
 
However, if it’s a data entry mistake or multiple figures don’t match, it can be really difficult and time-consuming to track down each item. 
 
Help is at hand 
Accounting software can show you each bank transaction and probable matching entries in your records or you can add what the transaction was for. With Xero you can even do it on your smartphone. 
 
Working with a professional bookkeeper will help too. We have seen all sorts of reasons why bank accounts and business records don’t match and that means we can often find the cause of the problem quickly. 
 
Our advice 
Reconcile your bank statement once a week if you can. That way you’ll have a much clearer memory of what you have paid and received, and it will easier to sort out any mismatches. If you have a lot of transactions every day then make it a priority to do an online reconciliation each evening. 
 
Using accounting software like Xero can make it a much faster process. You don’t have to sit at your desk to do it, you can use a smartphone, tablet or laptop, which means that you can do your reconciliation on the go. 
 
And, of course, keep in touch with your bookkeeper or accountant to make sure any rogue figures are quickly spotted and properly allocated. 
 
If you struggle to find time to reconcile your bank account or it’s the one job in your business that you hate, then get in touch to see how we can help. 
Share this post:

Leave a comment: 

Our site uses cookies. For more information, see our cookie policy. Accept cookies and close
Reject cookies Manage settings