Bank reconciliation is the process of making sure the information in your accounting records matches the transactions in your bank account. The opening and closing balances must match, as well as all of the individual transactions in between.
In this article we explain why it’s important, and how to do it.
How often should I reconcile my bank records?
It’s a simple concept in theory, but it’s easy to make mistakes which is why bank reconciliation is best done on a regular basis. That way you’ll know the most recent date everything still matched rather than checking a whole year’s worth of transactions in one go, or needing to unpick old mistakes!
Why is bank reconciliation important?
Having transactions in your bank account which are missing from your accounting system gives an inaccurate picture of how much money you have in the bank. This could find you paying an incorrect amount of tax. Ouch!
Additional or missing transactions make things difficult when the time comes to do your taxes. Under-reporting profits leads to a whole world of HMRC misery, even if you didn’t do it on purpose. You could end up on the wrong side of some hefty fines.
If, on the other hand, you add in extra, or even duplicate, transactions, you might end up paying more tax than you should because your profit figures are skewed by the mistakes.
How do I reconcile banking records?
The first step is to get a list of transactions from your bank account(s). Then pull up your bookkeeping records, showing all of your income and outgoings.
These might be recorded on a spreadsheet, in which case the next job is to go through each transaction in your bank account, and ensure there is a record of it in your bookkeeping. Check the amount, the dates, and whether it’s income or an expense.
If you use bookkeeping software (like our very own Pandle) then banking transactions can be imported into the software using bank feeds or file imports, which make discrepancies much less likely because the information is coming straight from the bank into your records.
Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.
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