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
Go paperless for FREE with Shoeboxed!

What is a Bank Transaction Receipt and its Benefits for Your Business

Whenever you visit a bank and make a monetary transaction, such as a deposit or withdrawal, the bank will provide you with a bank transaction receipt. This is how banks keep an accurate and up-to-date record of all financial transactions conducted at a given location by various account holders. 

Since this financial term is used in many situations in daily life, it’s good to have a basic understanding of bank transaction receipts and how your business can benefit from them. 

What is a bank transaction receipt?

A bank transaction receipt (also known as a bank receipt) is a standard form of documentation for most financial transactions. Customers who go to banks or other financial institutions to conduct any monetary transactions should expect to receive a bank receipt for these transactions. 

Besides transactions involving deposit accounts, these receipts are also sent to customers who make loan payments, credit card payments, and conduct other similar types of transactions. Bank transaction receipts are also given to businesses that conduct financial transactions at a given bank or financial institution. 

Banks also keep their own copies of bank transaction receipts. This ensures thorough record-keeping for all financial transactions for each of their various account holders. These receipts are also a form of collateral. If a customer makes a request, the bank will have a detailed record of the transaction to refer back to. Whether a bank employee makes an error or an account holder miscalculates a portion of the transaction, bank transaction receipts make it much easier to resolve disputes. 

In the past, bank transaction receipts were paper slips. However, in recent years, many banks have begun to offer digital copies of receipts (by email,  text message, or other methods). 

Using digital receipts rather than paper receipts enables the bank to save on printing costs. Digital receipts also provide convenience for account holders as they no longer have to keep track of numerous paper receipts. 

Bank transaction receipt details

A bank transaction receipt contains detailed information about a financial transaction conducted at a particular bank. The form of the receipt may vary by bank or institution, but all bank transaction receipts must include these essential details: 

  • Bank account numbers
  • Account holder name(s)
  • Date of transaction
  • The total amount of the transaction

Sometimes a bank transaction receipt will even include detailed information such as the employee number of the bank employee who conducted your transaction. 

How to use bank transaction receipts for bookkeeping

Given the importance of bank receipts to businesses, you can make use of these documents and turn them into a helpful tool for your bookkeeping practices, either for personal or business expenses. In fact, many banks and other financial institutions recommend balancing your account books on a monthly basis and referring to your bank transaction receipts throughout the process. It’s common to go over monthly bank statements and cross-check this information with all of your bank transaction receipts that you have collected for a given month. 

Even if you hire a professional accountant to track your personal or business finances, they will request a copy of your bank transaction receipts. Bookkeepers use this information to track your income, expenses, and other financial transactions impacting your cash flow. This financial data helps keep an accurate and real-time record of your financial activities. 

Bookkeepers also use bank transaction receipts for data entry purposes to track your credit card payments, which can help you control your spending. Bank transaction receipts can even help you improve your credit score over time with good bookkeeping practices

Some people prefer to use receipt tracking mobile apps that automatically track this information in real-time instead of working with an accountant. You’ll no longer have to keep a hard copy of your bank transaction receipts by using mobile apps, as this information is readily available on your mobile device. You only need to make sure that you store these physical copies of your bank receipts before uploading them into a cloud-based system. After scanning your documents with a versatile mobile app, you can free your desk and drawers from piles of paper receipts and keep them for years!

See more: 5 Best Receipt Scanner and Organizer Apps for Small Businesses in 2021.

How to use bank transaction receipts for taxes

Bank transaction receipts can be very beneficial when preparing for tax season. To work on the tax reduction process, first, you need to collect all proof of purchases for your business expenses. Next, you need to find the right tax form and fill in all the details. The last step is to submit the form and then you’re good to go. 

Business owners can use their bank transaction receipts to balance their accounts. You can do this by reviewing the monthly bank statement and comparing the amount and transaction dates of items listed on the statement with their bank receipts. 

Typically, businesses will keep their bank receipts until the end of the year for tax preparation purposes. Individuals who claim tax deductions for certain types of expenses must also keep copies of bank transaction receipts to prove that they qualify for deductions related to banking transactions, such as interest charges or mortgages.

The bottom line

Bank transaction receipts, along with business plans, marketing strategies, and financial reports, are essential documents for all businesses. Keeping and managing these documents properly can help track your business’s financial performance, solve disputes, keep the bookkeeping up to date and even claim tax deductions with ease. A simple yet effective way to achieve this is to digitally scan and store your important documents. 

Shoeboxed is a painless receipt-scanning and organizing solution for freelancers and small business owners. After scanning your receipts with the Shoeboxed app, our OCR engine will automatically extract the most important data points and automatically categorize them by vendor, total spent, date, and payment type. After that, our staff will double-check to ensure that all of your data is human-verified, categorized, organized, fully searchable, and available on any device. Shoeboxed keeps your bank transaction receipts in a safe place with high accessibility. 

See also: How To Scan A Receipt Digitally With The Shoeboxed App.

The Shoeboxed app is available on iOS and Android. You can try Shoeboxed for free before choosing the perfect plan for your purposes!