A bank reconciliation is the one part of your bookkeeping that tends to get overlooked the most.
A bank reconciliation is a comparison of what went through your bank account to your bookkeeping program. This helps to make sure everything is included and that there are no double transactions.
This is also why you want to make sure you have your business and your personal bank accounts separate. You’ll have a lot more transactions in your bookkeeping program when you include your personal banking information because the two aren’t separated.
It just causes more headaches all around.
If you are using a bookkeeping program like Quickbooks, Freshbooks or Xero, the bank feed will automatically update for you.
But at any point during the month, and especially when you start using a new bookkeeping program, there could be a glitch that happens so transactions do not get imported.
This means that your bookkeeping program is now missing transactions because of the glitch.
When you do a bank reconciliation this is caught and fixed.
When do you do a bank reconciliation?
A bank reconciliation should be done at the end of each month.
It will correspond to the bank statements from your bank. Most banks use a full month for their bank statements.
There are other banks that use the day you opened your bank account as your starting and ending point for the month.
Since the bank easily prepares the statement for you, it’s easy to just use the bank statement and use the dates on the statement for your reconciliation.
How do I find errors with a bank reconciliation?
Your bookkeeping program has a system already set up for you to easily do a bank reconciliation.
You will just print out the bank statement, then go through line item by line item. Make sure they are in the bookkeeping program.
Put a check in the box on the bookkeeping program and a check next to the item on your bank statement.
After you’ve gone through every item on the list, any item left over will let you know if there are any errors, duplicate transactions or just something that shouldn’t be there.
The balance on your bank statement and the reconciled balance in your bookkeeping program should match.
Your bookkeeping program will tell you if they don’t match.
What to do when you find errors?
Are the errors on your bank statement and not in your bookkeeping program?
Then this usually means the transaction wasn’t imported into your bookkeeping program. So you would just add it into your bookkeeping program.
Or are the errors in your bookkeeping program, but not on the bank statement?
This is usually what happens.
It could mean that there are duplicate transactions - something that was recorded in the bookkeeping program more than once.
It could also be a transaction that was entered into the bookkeeping program, but it didn’t clear your bank account yet.
You’ll need to investigate further where the error came from and why it is showing up.
How often do you do a bank reconciliation?
It should be done once a month.
This will help you make sure that you have all of the information in your bookkeeping program that you need to have there.
By completing a bank reconciliation, you are also making sure that the profit that is showing is your actual profit.
But also remember that profit does not equal the amount of money in your bank account. There could be more or less in your bank account than what your profit is.
Do you regularly do your bank reconciliations?
The bank reconciliations are a very important part of your business finances and should be done regularly. Do you make sure they are done every month for your business?
Or are they something you ignore and think you’ll get to them later? Or maybe you think that it’s really not that important?
Your bank reconciliation will help you make sure you are also getting all of the tax deductions that you are entitled to for your business on your tax return as well.