Accounting software has made accounting much easier for small businesses. It also ensures more accurate results. Despite that, companies need to compare their bank account statements against personal records, which is called bank account reconciliation. This process makes sure that the financial records are correct and helps companies spot discrepancies, fraudulent charges, and errors. 

This post will give you an in-depth understanding of bank reconciliation, the steps you have to follow to complete the procedure, and common issues associated with bank reconciliation. 


What Is Bank Account Reconciliation?

Bank reconciliation is when a company compares its account books with the bank statements to make sure that all the transactions are in records. This process will help you:

  • Keep accurate records,
  • Protect your company finance from any fraud, and
  • Provide solutions for any issues or discrepancies.

In most cases, bank reconciliation is performed at the end of every month. However, this frequency will largely depend on your company size and the number of transactions every month. 

Many large companies prefer reconciling their account records daily.

Whether you choose monthly or daily bank reconciliation, remember that you have to do it regularly. 

While many companies still prefer manual methods for keeping their records, you can use relevant bookkeeping software to make the process effortless and accurate. The best thing about these applications is that they integrate a company’s bank accounts, thus keeping all the records and information in one place.

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How Can You Complete Your Bank Reconciliation Procedure?

Here we discuss the steps you have to follow to complete your bank reconciliation procedure.

Step 1: Gather Your Bank Records

For bank account reconciliation, the most important thing you need is access to a list of all the transactions. You can choose one of the following ways to get this information.

  • Can use your online banking facility.
  • You can ask your bank to share information with the accounting software.
  • Your printed bank passbook is another source.

Step 2: Arrange Your Business Records

Besides bank records, you will also need to have information about your company records. Usually, the business records are stored in a logbook, spreadsheet, or accounting program.

Step 3: Find a Place to Start

Check the last time your business account books matched the bank balance, which will be the perfect place to start.

Step 4: Go through Your Bank Deposits and Withdrawals

Go through your bank statement to check if all the deposits and withdrawals are recorded. If you find anything missing, add it as soon as possible.

Step 5: Go through Your Income and Expenses in Your Books

Next, you have to compare your business account books against the bank statements to ensure that every transaction is recorded there. If you find any discrepancy, you have to find out the reason. 

Whether there is an uncleared payment or you have forgotten of any payment you have made, it will be your responsibility to solve the issue.

Step 6: Adjust the Bank Statements

A specific company transaction may not get recorded in the bank account statement, and the reason may be bank errors, outstanding checks, or deposits that are still in transit. Regardless of the reason, you have to make changes.

Step 7: Adjust the Cash Balance

Not only bank statements, but you will also need to adjust your company account records for greater accuracy.

Step 8: Compare the Balances

Once all the records are matched, and the adjustments are made, you will be required to make sure that the end balances are equal, which will mark the completion of the reconciliation process. However, if discrepancies are still there, you must repeat the whole process to detect the issue. 

Remember that accounting differs from one business structure to the other. So, before you set up your business, consult an expert for the best business structure advice.

What Are the Reasons Behind Conducting Bank Reconciliation?

Performing bank reconciliation regularly offers a lot of benefits. Some of them include:

  • Detecting suspicious transactions and theft
  • Monitoring bank transactions, fees and penalties in the business books
  • Keeping accurate records of the accounts payable and receivables of a business
  • Detected issues such as double or missed payments
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What Are the Common Issues Associated with Bank Reconciliation?

Conducting regular bank reconciliation will help you spot various issues. Here we discuss some of the common problems you may counter during the reconciliation process.

Returned Checks after You Have Deposited Them

Sometimes, banks decline a check deposit. It usually happens when the check draws money from an overseas bank account. 

When such an issue arises, you will be required to reverse the entry. It will, in turn, reduce your bank balance.

The Bank Clearing Voided Checks

If you find your check staying uncleared by the bank for a more extended period, the best thing you can do is to void the check, thereby creating a replacement.

Problems occur when the payee tries to cash the original check. If the bank had voided the check, the authority would not want to cash it. 

If they do not know about the voided check, you will be required to credit and debit the money to your cash account to explain the payment. 

Double Payment

When you do not communicate with your bank to tell them about the voided check, it may lead to a double payment. If the payee cashes such a check, you will be required to request them for repayment.

Missing and Uncleared Checks

In some cases, the bank may not clear checks immediately.

When it happens with the recent checks you have deposited, you must consider them uncleared checks at the time of reconciliation. 

On the other hand, if checks are uncleared for a longer period, you will need to make sure that the payee has received the check. Sometimes, you may also have to void the check and issue a replacement.

Consult a Professional for Your Business Setup

A business setup consultant can give you the best professional advice regarding business structure. They can also help you with other areas of business. So, get in touch with a top-rated business consultancy firm in Perth, and hire their best professional. 

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