Bank Reconciliation 101

Question of the Week

Hey all!

Happy Friday.

Tax season is in full swing, and I’m spending time with my business owners tying up loose bookkeeping ends for 2022, so we can file their tax returns. When cleaning up, I first check the reconciliation reports, which clients often forget about. So this week, I thought it would be fun to go back to the basics and review this essential task.


What is reconciliation?

Bank reconciliation matches what’s in your accounting software with your bank statements and “reconciles” any differences. In other words, it’s a check and balance (pun intended) to ensure your financial records and reporting are accurate. For example, reconciling ensures you haven’t missed or double-counted transactions. You’ll produce a reconciliation statement that confirms the payments and deposits for that period at the end of the reconciliation.

Reconciliation is crucial for keeping accurate records, as well as preventing fraud. Additionally, IRS auditors look at reconciliation reports and audit logs to verify that you consistently keep your books.



How do you do it?

For most people, reconciling is another household chore, like cleaning your bathroom, doing laundry, or taking out the garbage. Ideally, you should reconcile after the end of each month, preferably within 5-10 days. Of course, sometimes that’s unrealistic, depending on when you get your bank statements, but at least get it done by the end of the following month. And just like with other household chores, the longer you put them off, the harder they are to do and the longer it takes. And reconciling is one of those chores that’s easy to ignore.

Your accounting software will likely have a tab for you to enter your banking information. For example, I use QuickBooks Online for my business clients and me, and they have a “reconcile” tab under accounting.

Before you begin, you want to save the related bank statement as a pdf, so you can reference the information and also upload it to the system when finished. Once you have the statement, you will enter the end date and ending balance. At that point, you are just matching transactions in the system to the transactions in your bank statements. If they match, you put a checkmark; if they don’t, you leave it unchecked. If you’ve linked your bank and credit card statements to QuickBooks, the system may check some of them for you. The system will keep track of any differences. Once the difference is $0.00, that month is reconciled.

Once you reconcile the account, you can attach the bank statement to that report, as I mentioned above. I also recommend printing out the reports and keeping them in a separate folder if you need them and don’t have access to your accounting system.


Tricks of the Trade

The simple process can become very tedious and frustrating if you can’t get the balance to zero. So here are a few tricks of the trade:

  • Check and recheck to make sure the ending balance and starting balance match.
  • If you create journal entries for certain transactions, make sure the total on the journal entries matches the total deposit or credit on the statements
  • Make sure to reconcile all accounts related to the business.
  • Keep consistent. As I mentioned, it’s easy to let this go, but it will be a headache if you get audited and have to go through three years of reconciliation.
  • If you get frustrated, take a break and go back. Sometimes a little space is all that you need to figure out the answer you need.


Quote of the Week

“For every minute spent organizing, an hour is earned.” – Benjamin Franklin


Task of the Week

If you haven’t done it in a while, or haven’t ever done it, check your reconciliation reports in your accounting system. It should be one of the reports you can run in your accounting software.

If you’re behind, use this weekend to start catching up. You don’t need to do it all at one time. You may begin with the step of just printing your bank statements. Once you have those, take the next right step.