What is a bank reconciliation

A bank reconciliation is a check that is carried out to ensure the bank statements entries are captured accurately within the business bookkeeping ledgers.

By carrying out regular reconciliations you can identify any duplications, omissions or other errors in your records and therefore amend accordingly. These should be carried out at least on a monthly basis so that these errors can be quickly be identified and rectified before any management reliance is placed upon the overall figures.

For businesses that operate multiple bank accounts, separate reconciliations should be prepared for each account so it is recommended that bookkeeping records are kept in such a way that totals for each account can easily be identified.

With the gradual switch from cheques to electronic payment methods, bank reconciliations are becoming increasingly easy to carry out as the “clearing” process becomes less and less relevant.

Bank reconciliations can be laid out in different ways depending on your own preference but the principles are still the same. Here are a couple of examples:

Example 1 – business that only has electronic payments

Example 2 - business that has both electronic and cheque payments

What if you have a difference on your reconciliation?

It can be frustrating if you have a difference, particularly if there is a high volume of transactions, but here are the main things to check:

• Have you correctly identified all the uncleared deposits and payments?
• Have the previous reconciliations uncleared items now cleared the bank statement?
• Have the totals been correctly added in the ledgers and entered on to the reconciliation?
• Are there any transactions that you think have potentially been missed by glancing over the bank statements?

If you are happy with the above, then it will require a more in-depth look. Depending on the bookkeeping records and period you are trying to reconcile it can be easier break it down it to smaller reconciliations. For example, if you have a difference in your reconciliation for the year ending 31st December, try doing one just for January, then February, etc. This will at least isolate which month(s) you have any discrepancies in rather than matching off each individual item for the whole year.

Once you have identified which months don’t agree, you can then look at a more transactional level by manually matching off one bank statement line against one ledger entry. Anything that isn’t matched at the end should represent your difference and will allow you to make the necessary adjustments.