Bank Reconciliation: What Is It?
What Does It Mean to Reconcile a Bank Account?
Reconciling a bank account is the process of comparing your bookkeeping records to your bank statements to ensure that every transaction is accounted for and resolving any discrepancies or errors you come across. This is an extremely important task to ensure complete and accurate books.
Why Should I Reconcile My Bank Account?
There are many reasons why you should reconcile your bank account.
Reconciling can assist in finding fraudulent transactions. If you find that there’s a transaction on your bank account that isn’t recorded in your books, it’s time to do some investigating. It’s possible that someone is embezzling money from your account or that they tampered with a check you wrote and paid themselves more than what was agreed. While reconciling your accounts won’t stop fraud, it will help you catch it sooner.
There are also times when you may forget to record a transaction in your books, but when it shows on your statement, you’re given an extra reminder. If you use accrual basis accounting, reconciling can help you keep track of your accounts payable and accounts receivable.
It can also give a glimpse into how much cash your business has on hand and where it’s being spent. This helps you make better financial decisions for your company.
How do I Reconcile My Bank Account?
Before you start reconciling, it’s important that you have all your books up to date with your bank statement. If you use accounting software and online banking, you may be able to automatically import your statements into the software. This can save you a lot of time.
After updating your books, you’ll want to compare them against your bank statement. Take note of any discrepancies you find so you can look into them further and adjust the bank statement and your books. Typically, they won’t balance when you start reconciling.
Here are some common reasons they may not balance:
Bank interest and fees which may include service charges, overdraft fees, late payment fees, and interest.
Deposits in transit that have been recorded in your books but haven’t been processed by the bank.
Outstanding checks that you have written and recorded that haven’t been cashed or cleared.
Not sufficient fund (NFS) checks that were written and recorded but unable to be cashed.
If you find a transaction on one document, but not the other, you will need to record these differences and balance them. This can be done by making adjusting journal entries in your general ledger or on a separate document, known as a bank reconciliation statement.
How Often Should I Reconcile My Bank Account?
Reconciling your bank on a regular basis is important so that you can ensure accurate records and detect any errors or fraud early on. It may be a good idea to reconcile your account whenever you receive a bank statement. Typically, this will be mailed or emailed to you at the end of each month.
The frequency may also depend on your business and how many transactions you do. If your business has a large number of transactions in a day, such as retail and restaurants, you may want to reconcile your accounts more frequently.
Need help reconciling your books? We’ve got you covered! Contact us or give us a call at (360) 756-5020.