Learn about Bank Reconciliation
What is bank reconciliation?
Bank reconciliation is the process of double-checking your business’s financial data. You do this by comparing your business accounts against your bank statements. Both sets of records should agree with each other. Doing bank reconciliation will highlight any transactions that don’t match, and it's important to then figure out why this has happened.
Why do Bank Reconciliation regularly?
Doing your Bank Reconciliation daily, weekly, or monthly helps to:
- Find and fix errors in your bookkeeping before they get out of hand.
- Catch fraudulent or scam payments early.
- Confirm how your business is performing financially.
- Be prepared for filing taxes (bank reconciliation records are mandatory for businesses, so don’t leave it until the end of the financial year!).
Locking the Transactions
Once you have completed your Bank Reconciliation for the month, the reconciled transactions will be locked. This is to protect you from accidental changes that will not only affect that month's reconciliation but also any reconciliation you have completed for future months.
The reconciled bank balance carries forward from month to month. Also, deposits and cheques that were outstanding at the end of a month may have subsequently appeared on your Bank Statement and are no longer recognized as outstanding. Consequently, if you make a change to an earlier month, you may need to complete all your subsequent reconciliations again.
Undoing a Reconciliation
If you need to make changes to reconciled transactions, you can undo the reconciliation. This will unlock those transactions, allowing you to make necessary adjustments. However, it is crucial to ensure that any changes do not affect the accuracy of your financial records. If you have already transferred information to your accountant, only make changes advised by your accountant.
How to do Bank Reconciliation?
Firstly, you’ll need your bank statement(s) handy.
- From the sidebar, select Banking > Reconciliation.
- Choose the relevant account, month, and year that you want to reconcile, and then select Start Reconciliation.
- Set an opening balance as per your bank statement (this should equal the closing balance of the previous month).
- Set a closing balance as per your bank statement.
- Review your bank statement and tick the ‘Matched’ box on the transactions that match up with your bank statement.
- Once you’ve matched your transactions, if there is a discrepancy, you will need to figure out why (is it a mistake? Is there a delay in payment?). If you’re unsure, contact your accountant to discuss the discrepancy.
- Once you’re done, select Reconcile Account.
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