How To Do Bank Reconciliation: A Beginner’s Guide 

Keeping your bank transaction records accurate is a determining factor in any business’s finances and management.  

How do you know if your bookkeeping records reflect exactly what appears on your bank statement? One way to check is through a bank reconciliation. 

This article will explain what it means to reconcile your bank account, why it’s important, and how to do a bank reconciliation.

What’s a bank reconciliation? 

Bank reconciliation refers to the process of comparing a business’s cash records to a bank statement. While scanning these documents, if you find any discrepancies or errors, you will need to figure out the cause of the differences and make adjustments to correct them.

Most companies perform bank reconciliations on a regular basis in order to maintain up-to-date, verifiably accurate data and prevent fraud bookkeeping errors and other issues. While some companies still do bank reconciliations manually, many software solutions are available to make the process easier, quicker, and more efficient, like Xero, Sage, or Zoho.  

Why should you do bank reconciliation regularly?  

The ultimate goal of a bank reconciliation is to catch any mistakes and errors made by anyone with access to a business’s bank account—including the bank itself.

That’s why, if you don’t perform bank reconciliations at regular intervals, these little mistakes can add up without being identified, which could lead to serious issues affecting your cash flow and operations management. 

By carrying out bank reconciliations regularly, you greatly increase the chance of finding errors, preventing your business from losing any money. 

For example, let’s look at some common problems that you may come across during your bank reconciliation:

  • Checks that are returned after being deposited: Banks can decline the deposit of a check for a variety of reasons. If this problem arises, reverse the entry representing the failed deposit by giving a credit to the cash account, reducing the balance, and increasing the debit in the account for accounts receivable.
  • Double payment: If you don’t notify the bank about a voided check, you might end up paying twice. Request reimbursement if the payee cashed a voided and replacement check.
  • Missing and uncleared checks: Doing bank reconciliations will help you pinpoint missing or uncleared checks. For recent checks, continue reconciling them as uncleared checks. For checks that have been uncleared for a long time, contact and confirm whether the payee received the check, and in some cases, void the check and issue a replacement.

You might also be interested in: The 5 Most Common Bank Reconciliation Problems for Small Businesses.

How often should you do bank reconciliation? 

This will mainly depend on the volume of your business’s transactions. If your business has money entering and leaving multiple times per day, you should reconcile on a daily basis. On the other hand, if the transactions don’t happen daily, you can reconcile every week or month. 

It’s best to have a regular schedule. Decide how often you need to reconcile and stick to it. This will ensure that your financial data stays updated and you keep your unreconciled bank statements from piling up. 

How to do a bank reconciliation – Step by step guide 

Though bank reconciliations may sound complicated, they’re actually quite easy. Follow these seven steps to complete a bank reconciliation: 

1. Get a copy of your most recent bank statement 

Ask your bank to obtain a list of every transaction you’ve made in a period of time that you want to check. You can request a paper copy or ask the bank to send the data straight to your email or accounting software. 

2. Have your accounting records ready 

To simplify the bank reconciliation process, make sure you have your records available for the same time period as the bank statement you are referencing. You can have it printed or make a separate spreadsheet to cross-check the bank’s records easily.   

3. Review your bank deposits and withdrawals 

Make sure each deposit appears as an income recorded in your accounts. If something is missing, take note of it so that later, you can determine whether it was a sale, interest, refund, or something else.

All bank withdrawals should be recorded in your books. However, you might find out a few things that you haven’t accounted for yet — the most common ones are bank fees and overdraft fees.   

4. Review the income and expenses in your books

Repeat this process exactly the same as step 3: go through every transaction, note the differences, and determine their cause. 

5. Adjust your bank statement 

Make the necessary adjustments to your bank statements’ balances to match the updated and corrected balance. You might have to add deposits in transit, deduct outstanding checks, and add/deduct bank errors to correct them.

6. Adjust your accounting records

You’ll also need to update your records to reflect the bank’s transactions appropriately. Go through the discrepancies you noted previously while checking your books and make changes accordingly.  

7. Compare the balances

The adjusted balances from the two sets of documents should be the same. If they’re still not equal, you will need to do the process of reconciliation again. When the numbers are perfect, you can mark this as the starting point for your next reconciliation.

The bottom line 

Bank reconciliation is an integral part of every business’s accounting procedure. It helps you improve accuracy, prevents losing money, and keeps track of your cash flow. Remember to reconcile frequently, as the longer you go without it, the more difficult it will be to catch up. 

Checking your receipts is one of the most effective ways to examine and adjust the differences you spotted during bank reconciliation. That’s why having all of your receipts in one place is super handy in these situations. 

Shoeboxed can help you with that. 

Shoeboxed is an online receipt scanner that helps you clear your piles of documents and converts them to digital in just seconds. This versatile app automatically extracts and categorizes important data from your receipts, which then gets manually checked and approved by a team of data experts
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