1. Bank Reconcilation
What is bank reconciliation and why is it important?
Put simply, it’s a check of your business accounts against your bank statements. The two sets of records should agree with each other, but if not, you will need to find out why?
What’s the point?
Regular bank reconciliation has a number of benefits including:
- Catch payment errors and fraud – spot incorrect payments or suspicious activity
- Find and fix bookkeeping errors – identify mistakes and correct them
- See how my business is performing – regularly checked financial data helps you keep track on your business
- Be ready for tax filing dates – a fully reconciled record of income and spend will make your tax returns easier and faster
Bank reconciliation FAQs
Q – Does everything need to match 100%?
A – Your bank account in your business accounting software must mirror what is shown on your bank statements.
Q – Why are some transactions missing?
A – There can sometimes be a delay or ‘lag’ in transactions appearing on your bank statement. So if it’s a recent transaction don’t worry. If the transaction is older, then it probably needs investigating.
Q – How often should I do a reconciliation?
A – The longer you leave it between reconciliations, the bigger the job, so we would recommend a weekly reconciliation, but if you have a lot of transactions you might want to consider doing it more often, even daily.
Q – Can it be done online?
A – There is nothing wrong with a manual, paper-based reconciliation, but it can be a bit tedious and does require more hard copy files! Most banks will now send transaction data to online accounting software systems like Xero. Our next business guide, “How to do a Bank Reconciliation” (below) will look at the process in more detail.