You or your accountant will compare the recorded transactions to the bank statements in order to reconcile a business bank account. Along with accounting for uncashed checks and interest, you'll also mark any transactions that are missing or strange so that they may be looked into further.
You can make sure you've accurately recorded every transaction by doing a monthly bank account reconciliation. Additionally, this is the most effective approach to identify and fix any overlooked or possibly fraudulent transactions.
What is bank reconciliation?
Verifying documented transactions against those seen on bank statements is the process of reconciling a business bank account. You can then see which transactions are missing from both records.
You can make sure that all of the transactions in your company are accurately accounted for and that none have been entered incorrectly by adhering to this procedure. In order to notify your bank and address inconsistencies, you can also identify fraud early on.
You can make sure that all of the transactions in your company are accurately accounted for and that none have been entered incorrectly by adhering to this procedure. In order to notify your bank and address inconsistencies, you can also identify fraud early on.
Why is reconciling your bank account important?
The quickest method to find any fraudulent activity is to routinely reconcile your company's bank accounts. Any transactions that show up on your statement of account activity but aren't included in your internal accounting will be flagged for inspection by you, your accountant, or your bookkeeper.
Additionally, reconciliation guarantees that the internal records of your business match your bank balance. You can make sure you don't inadvertently overdraw your account and find any payments that might have been misplaced or sent to the incorrect person.
Additionally, reconciliation guarantees that the internal records of your business match your bank balance. You can make sure you don't inadvertently overdraw your account and find any payments that might have been misplaced or sent to the incorrect person.
You run the risk of missing fraudulent transactions in your account if you don't routinely reconcile your business bank account with your internal records. Additionally, you can have bills sent to collections or miss payments to vendors, both of which could damage your credit.
Additionally, it's possible that you will unintentionally overdraw your account and incur costs from your banking institution. It's possible that you will overlook tax deductions and wind up overpaying for taxes.
Additionally, it's possible that you will unintentionally overdraw your account and incur costs from your banking institution. It's possible that you will overlook tax deductions and wind up overpaying for taxes.
How to reconcile a bank account
You must examine your financial institution's account activity statements in order to reconcile the bank account for your company. Next, you must contrast the transactions shown on your statements with the internal accounting records of your business.
Adjustments might be required for payments that haven't cleared yet, such as checks that haven't been paid, and interest accrued on your account(s). Mark any transactions that you are unsure about for additional examination.
In more detail, these steps are as follows:
Adjustments might be required for payments that haven't cleared yet, such as checks that haven't been paid, and interest accrued on your account(s). Mark any transactions that you are unsure about for additional examination.
In more detail, these steps are as follows:
1. Review your account statement.
Obtaining account statements for the periods and accounts you're reconciling is the first step in the account reconciliation process. Examine all of the payments, withdrawals, and deposits indicated on each statement, making a note of any that you don't understand. Make a note of your finishing balance as well so you can compare it to your own accounting at a later time.
2. Compare statements to internal accounting records.
After you've looked over the account activity your bank recorded throughout the reconciliation period, check the transactions on your statements with the information you have on file. Verify that the amounts of each transaction match up in your records and on your bank statements.
Any that don't match or those you don't recognize should be noted in particular. It's possible that some of your transactions—both credits and debits—don't add up and need to be adjusted.
Any that don't match or those you don't recognize should be noted in particular. It's possible that some of your transactions—both credits and debits—don't add up and need to be adjusted.
3. Adjust for uncashed checks.
If your company sends checks for payments on a regular basis, it's likely that you've issued a few checks that haven't been cashed yet, so your bank records won't show them. This implies that a significant number of transactions that aren't shown on your bank statement or in your final balance may have been recorded by you.
To put it another way, even though your bank statement indicates "available" funds, they could vanish at any time when payees cash your checks. You'll need to make adjustments to your records for account reconciliation, such as adding the value of any checks that remain uncashed or deducting the value of any deposits that haven't cleared yet.
To put it another way, even though your bank statement indicates "available" funds, they could vanish at any time when payees cash your checks. You'll need to make adjustments to your records for account reconciliation, such as adding the value of any checks that remain uncashed or deducting the value of any deposits that haven't cleared yet.
4. Record interest income and other credits.
It might be necessary for you to make adjustments for interest income and other debits or credits that show up on your bank account but not in your internal records before continuing. But you should only make changes to transactions that you can easily verify with your bank. Here are a few common modifications:
Should your statement contain any of these kinds of transactions, you ought to verify them with your bank and make the appropriate corrections by adding transactions to your records that correspond with the transactions on your statement.
- Interest accrued on your account
- Bank expenses (like paper statement fees) that you might not be aware of until the statement arrives
- Fees for overdrafts or late payments
- Fees for wire transfers
- Reversals of bank fees
Should your statement contain any of these kinds of transactions, you ought to verify them with your bank and make the appropriate corrections by adding transactions to your records that correspond with the transactions on your statement.
5. Review any other discrepancies.
Check your bank statement for any additional transactions that don't add up after you've made adjustments for uncashed checks and easily verifiable debits or credits. Sometimes transactions that you just failed to record might show up on your bank statement.
In other cases, it's possible that your bank credited your account in error rather than that of another client. In the worst situation, fraud might have had an impact on your account.
In other cases, it's possible that your bank credited your account in error rather than that of another client. In the worst situation, fraud might have had an impact on your account.
You might need to review your earlier records to determine whether any of the transactions on your statement are from payments you made earlier than the current reconciliation period in order to reconcile any odd transactions. To determine whether you merely overlooked entering a transaction in your bookkeeping software, you might also need to review other accounting documents, such as vendor invoices.
In this scenario, updating your internal records will need you to enter those transactions right away. Instead of attempting to remember the exact month that the payment was made, you can enter the transaction in the current month.
In this scenario, updating your internal records will need you to enter those transactions right away. Instead of attempting to remember the exact month that the payment was made, you can enter the transaction in the current month.
Should your record-keeping fail to reveal that you merely overlooked the transaction, you ought to get in touch with your bank to obtain further information on the transaction, such as canceled check copies or bank transfer details.
With this information, you can attempt to verify if you truly meant to send the money but forgot to record it. Should you still be unable to identify the payee or the particular transaction, get in touch with the fraud department of your bank immediately.
With this information, you can attempt to verify if you truly meant to send the money but forgot to record it. Should you still be unable to identify the payee or the particular transaction, get in touch with the fraud department of your bank immediately.
6. Reconcile your checking account with other accounts (optional).
Even while double-entry accounting is a popular feature of accounting software, not all businesses employ it. If your company uses this kind of accounting, you should take advantage of the chance to reconcile your other accounts when you're doing the bank account reconciliation.
After you reconcile all of your internal transaction records, this process—which is a little more involved—essentially entails making sure that every single transaction is accurately broken down in your books. At least two entries for every transaction should be made in your internal records: one for the cash account and another for the credit or debit of an equity income or liabilities.
After you reconcile all of your internal transaction records, this process—which is a little more involved—essentially entails making sure that every single transaction is accurately broken down in your books. At least two entries for every transaction should be made in your internal records: one for the cash account and another for the credit or debit of an equity income or liabilities.
How often should you reconcile bank accounts?
The conventional guideline is for business owners to reconcile their bank accounts at least monthly, and this is what most do. Modern accounting software, on the other hand, allows you to precisely track which transactions are still pending at any one time and to continuously monitor your bank accounts.
Additionally, if a transaction clears your account that you haven't put in your records, the software can instantly notify you. In this manner, you can address any accounting errors right away.
Reconciliation should be a routine bookkeeping procedure for your company given these capabilities. Review your company's transactions during the monthly account reconciliation to look for areas where you may cut costs or enhance operations.
Additionally, if a transaction clears your account that you haven't put in your records, the software can instantly notify you. In this manner, you can address any accounting errors right away.
Reconciliation should be a routine bookkeeping procedure for your company given these capabilities. Review your company's transactions during the monthly account reconciliation to look for areas where you may cut costs or enhance operations.
- Checks that are not cashed: Payees may need to be reminded to cash your checks.
- Inaccurate payee information: Verify again that you have the payee's right address and other pertinent information.
- Missed deposit: Check with your bank to make sure it was made.
- Inaccurately recorded transaction: Verify the transaction details by consulting your records, which include copies of invoices and canceled cheques.
- Transactions that appear fraudulent: Contact your bank's fraud department or get transaction details.
The best accounting software for reconciling your business bank account
The ideal method for automating the bank reconciliation procedure is to use top accounting software. Accounting software allows you to send invoices, keep track of transactions, create reports, and keep an eye on inventory levels.
The ideal accounting software is user-friendly, reasonably priced, and effortlessly connects with other tools you use for your company. The following are the top choices for various company kinds:
The ideal accounting software is user-friendly, reasonably priced, and effortlessly connects with other tools you use for your company. The following are the top choices for various company kinds:
Xero:
Because it can be used at a low monthly cost and its capabilities can be expanded as your business expands, Xero is the greatest choice for expanding enterprises. You can run more than 50 reports with Xero and it interfaces with over 1,000 business apps. You can test Xero for free for 30 days if you're interested.
Intuit QuickBooks:
QuickBooks's extensive range of connectors and reasonable cost make it the perfect choice for small businesses. The software allows you to run reports, monitor payments and transactions, and send invoices. A complimentary 30-day trial is also included with QuickBooks.
FreshBooks:
FreshBooks is your greatest option if the main reason you need accounting software is to send invoices. With the help of the program, you can generate and distribute expert invoices as well as automatically remind clients to pay their bills when they are past due.
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