How to Do a Bank Reconciliation
Bank reconciliation is part of life as a small business owner. It keeps your bookkeeping accurate and can help lower your taxes, alert you to fraud, and allow you to track costs. So, you may wonder how to do a bank reconciliation? Well, with the help of Barta Business Group, an accounting firm in Denver, Colorado, we will show you how today.
Bank Reconciliation Steps
Bank reconciliation happens when you compare your record of sales and expenses against the record your bank has. It’s how you verify your business accounting numbers.
- Get bank records
You need a list of transactions from the bank. You could get that from a statement, from online banking, or by having the bank send data straight to your accounting software. If you run a current account and a credit card account, you’ll need both statements. - Get business records
Open your ledger of income and outgoings. This might be in a logbook, on a spreadsheet, or in an accounting software package. Some accounting software will pull in bills and receipts with the help of data capture tools and extract the data automatically. - Find your starting point
Find the last time the balance on your business books was the same as the balance in your bank account. Start the reconciliation from there. - Run through bank deposits
Make sure each deposit appears as income in your accounts. If something is missing, enter it. You’ll need to figure out if it was a sale, interest, a refund, or something else. - Check the income on your books
Each entry should match a deposit on your bank statement. If something is missing, find out why. A customer payment might have bounced, for example. - Run through bank withdrawals
All bank withdrawals should be recorded in your books. This includes things like bank fees, which you might not have accounted for yet. - Check the expenses on your books
Each entry should match a withdrawal from your bank statement. If not, find out why. One of your payments may not have cleared yet, or maybe you paid using cash or a different account. - End balance
After you’ve checked all the deposits and withdrawals, your business bank balance should match the totals in your business accounts. This will be the starting point for your next reconciliation.
How to Do Bank Reconciliation the Easy Way
Bank reconciliation can try to work. Switching between documents and comparing numbers isn’t everyone’s cup of tea. If you can’t spare the time or stand the monotony, there’s an alternative. Software will speed things up hugely.
Bank Reconciliation Problems
No matter how you do bank reconciliation, you’ll come across mystery transactions from time to time. There will be amounts that appear in one set of records but not the other. Don’t let it panic you. This is why you’re doing bank rec, and there’s often a straightforward explanation.
Business Books Showing Something Not on Your Records?
If a transaction isn’t showing on your bank statement, it’s most likely because you got income that you didn’t bank, or you paid for something out of a different account or with cash. Understand it and make the notes.
Bank Statements Show Something Not in Your Business Books?
If a transaction isn’t showing in your business books, it could be from a keystroke error when you entered a transaction. Or it could be a transaction that you forgot to enter. Make the required corrections or updates.
Fixing Bank Reconciliation Problems
It can take a long time to figure out mismatches. You’ll need to go through invoices, receipts, emails and diary entries to get there. Doing bank reconciliation weekly–or even daily–can help you avoid these frustrating searches because you’ll have a clearer, more recent memory of the transactions you’re reviewing.
About Barta Business Group
Most businesses are great at their craft, but not great at the financial back of the house. At Barta Business Group in Denver, CO Our team of bookkeeping, accounting, and finance professionals guides business owners in making better decisions, so they can focus on doing what they love in their business. We understand the peace of mind that comes from knowing your financial information is done right every time. We value being able to support businesses in turning financial data into actionable insights, so you may plot a course for your company’s future with confidence.