Bank reconciliation is the comparison of your monthly bank statement to your internal accounting records. You need to make sure that the closing amount on your bank statement matches the closing balance on your accounting records. Don’t be immediately alarmed if you discover a discrepancy as it could be a simple oversight, unaccounted for bank service fees, or outstanding checks. Whatever the reason may be, you need to identify and properly resolve the issue.
Whether you use accounting software or a bank reconciliation spreadsheet, the following tips can help you ensure banking accuracy and better manage your cash flow.
1. Make sure your internal accounting records are up to date
It may seem like common sense, but small business owners get busy and may forget to maintain accurate accounting records. Before you begin attempting your bank reconciliation, make sure your records are accurate. Double-check to make sure that you entered all outgoing checks and noted any bills you may have recently paid.
2. Reconcile Monthly
If you’re still receiving your bank statements by mail, don’t toss them in a drawer. If you can access your statements online, set a dedicated date each month to perform your bank reconciliation. As a small business owner, you should be reviewing your monthly banking statements each month to ensure that funds being withdrawn and deposited into your account are accurate to prevent bank errors and detect potentially fraudulent activity.
3. Reconcile Carefully
A cleared transaction means that your bank has processed the payment, and it should be reflected on your banking statement. Most discrepancies are a result of pending transactions. If you notice an error, double-check the following:
- If you recently deposited a check that is not reflected on your statement then you should increase the ending bank balance.
- Sometimes the checks you recently sent out may not be reflected in your present bank statement. These outstanding checks should be deducted from your ending bank balance
- If you notice a discrepancy for a large amount, check to see if any deposits or withdraws from the previous month are reflected on your current statement
- If you believe a payment should have been posted to your bank account, confirm the person or business actually received the check, and urge them to make a deposit soon
- Make sure that your deposits listed on your bank statement accurately match your deposit slips
- Look for any bank fees like service, overdraft, or returned check fees