Why You Should Reconcile Your Bank Account
Looking for a simple way to increase the accuracy of your bookkeeping? Reconcile your bank account. The task is relatively easy to do and if done regularly doesn’t take too much time, yet it has a huge impact on the accuracy of your books.
What is reconciling
Reconciling is when you compare your bank balance and the transactions that went through your bank account for the month with transactions posted to your bookkeeping or accounting system. Start with the beginning balance, match up the deposits, match up the withdraws, if they all match your ending balance should tie out. Items posted in your accounting system which have not been processed through your bank are outstanding items. These items should be reviewed carefully.
What does reconciling accomplish
Reconciling on a regular basis will help identify mistakes and missing information. It will catch transactions that haven’t been posted and should have been. For example, a client paid and you took the check to the bank but forgot to post it in your accounting system. The bank will show a deposit that you don’t have in your books and your client will have an outstanding balance that actually was paid.
Duplicate transactions are a common problem that reconciling can fix. Whether you forgot where you left off the last time you entered transactions, or something went haywire with a sync, you can end up with transactions duplicated. When reconciling, one of the duplicates will match up to the bank transaction and the other will be left as an outstanding item.
How to reconcile
Most accounting systems have this as a function within their system. (In Quickbooks Online, you can find it under the Gear/Tools icon). You will select the bank account, enter the ending balance and date of the statement for which you would like to reconcile.
Next, you’ll be given a list of all the transactions posted to that bank account that have yet to be reconciled. Compare and select each item as you match it up to your bank statement transactions. As each item is selected, the variance at the top will adjust. Once you have matched up all the items, the variance should be $0.00.
When you accomplish that, review the items that remain unchecked, these are your outstanding items. Review each of these to identify why it remains outstanding.
- Did a check get lost it in the mail?
- Is it a duplicate?
- Was there a difference in the amount of a transaction?
- Was a processing fee taken out or added to a transaction?
When to reconcile
Ideally, reconciliations should be done monthly once the bank statement becomes available. Add it to your month end process when you are reviewing the numbers and comparing to your monthly goals.
