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Getting to grips with the fundamentals of business accounting can often feel like information overload. At Harlands Accountants, it’s our aim to demystify accounting topics for small business owners to they can measure, analyse and report with confidence.
Today, we’re turning our attention to bank reconciliation. We’ll be exploring what it is, why it matters, how it works and more to break this seemingly complex topic down into digestible chunks and help you take on bank reconciliation for your own business.
What is bank reconciliation?
Bank reconciliation is the act of cross-referencing your business bank account statements and your own financial reporting to identify any discrepancies. Think of it as a tool for double-checking that your business’s bookkeeping is accurate and ensuring all relevant transactions are present and accounted for.
Where there are any gaps or disagreements between your bank statements and financial records, these discrepancies present an opportunity to investigate so you can diagnose any issues and make the appropriate fixes.
Why is bank reconciliation important?
At a high level, bank reconciliation helps you to gain greater visibility of your company’s financials, protect your business’s cash flow and weed out instances of fraud.
There are numerous benefits to performing regular bank reconciliation checks, including but not limited to:
Types of transactions to look out for
There are a number of typical errors or inconsistencies you’ll come across during the process of bank reconciliation, and these are the areas that deserve particular attention.
When reconciling your business bank account and books, keep a close eye on the following:
How bank reconciliation works
Bank reconciliation is a straightforward process that simply involves comparing your bank transactions data for a given period with a copy of your business’s accounts from that same period.
There’s no right way to perform a bank reconciliation other than to be as thorough as possible in cross-referencing every transaction to match these up between the two records, and to find and fix any discrepancies you come across through the course of the exercise.
These reconciliations are best done monthly so you can stay on top of your books and ensure they’re spotless. Over time, you’ll identify patterns in the errors you find which will enable you to six any systematic issues creating these errors for more accurate reporting in the future.
It’s only by staying this close to your financial data that you can gain these insights and evolve your bookkeeping processes in the long term.
Manual bank reconciliation can be an arduous and extremely time-consuming task, particularly when there are physical records involved. Make this a more efficient process from the start by using a digital copy of your bank transactions data, via your accounting software for example, so you can compare the two records side by side on a single screen.
Better yet, with cloud accounting software like Xero, you can further accelerate the process with the potential for automated record matching - removing a great deal of legwork involved.
Tighten the reins on your financial record keeping today by taking on your first bank reconciliation. You’ll love reaping the benefits that come with knowing your books are complete, accurate and up-to-date.
Get in touch with Harlands Accountants today for any advice, support or guidance when it comes to best-practice business accounting.