Bookkeeping 101: Bank Reconciliation

The keys to good bookkeeping are organization and attention to detail. Bookkeepers and small business owners managing their own books need to accurately record each expense and source of income to understand their true financial situation. 

Bank reconciliation is one of the key processes of effective bookkeeping that requires attention to detail. This step aligns the bank’s records with your internal ledger to make sure they reflect the same amount. 

This process can be tedious if you fall behind on your records or have a lot of transactions. However, this guide will help you understand its importance and—hopefully—make the process easier. 

How Do You Reconcile a Bank Statement?

To reconcile your accounts, start with your bank statement. Look at the deposits you made to your bank and compare them to the credits and debits you have recorded in your financial ledger.

Each amount, date, and reason should coincide—showing that the bank’s records and your records are accurate. If they don’t, correct the discrepancy and identify the source of the issue. More often than not, this difference is caused by human error and can be quickly and easily reconciled.

If using double-entry bookkeeping, you’ll need to check 2 accounts in your financial ledger to make sure the bank statement transaction has both a debit and credit.

For example, you may have a withdrawal from your bank to buy equipment for your store. This withdrawal is recorded as a credit in the cash account of your business but as a debit for the equipment category. Even though your business lost money, it maintained its equity through assets.

By having your financial records in 3 different places (debits, credits, and the bank statement), you can rest assured knowing every piece of financial information is accurate and accounted for. 

How Often Should You Reconcile Your Accounts?

Historically, businesses would reconcile their accounts monthly when the bank sent a physical statement. However, the digital era has made it easier for businesses to pull data from a banking period and reconcile accounts as they go. 

At the very least, you should reconcile your accounts monthly. However, you may decide to set up a weekly reconcile meeting to download the statements and review your ledgers. Some companies even reconcile their accounts daily if they have a high number of transactions. 

By reconciling your accounts regularly, you won’t have a huge build-up of statements and ledgers that need adjusting. This proactiveness will prevent you from logging long hours each quarter (or even at the end of the year) as you try to match up what your bank says compared to your ledger. Even though you may be tempted to procrastinate on this process, you will have to reconcile your books eventually.  

Bank reconciliation is one of the least glamorous parts of running a business. However, this practice is essential if you want a reliable view of your finances. Along with good bookkeeping habits, look for a tool that helps with bookkeeping by automatically connecting you with your bank. Learn how Lendio’s software can help you take control of your finances and make reconciliation easier.