Reconciling Your Account: What you need to know

Reconciling Your Account: What you need to know

Written By: Sharon Sacks, CPA

Reconciling your bank account is something every business should be doing. It allows you to catch very common errors and may even alert you to fraud. If you do not reconcile your accounts, then your financial records may be wrong and you may not be aware of recurring issues that need to be corrected. In this blog, we will discuss what it means to reconcile your bank account and the general steps to reconciling your account.

What does it mean to reconcile your accounts?

When you reconcile your bank account you are comparing the transactions recorded in your accounting software with the transactions shown on your bank statement. You need to adjust your accounting records to agree with the bank and record monthly fees and electronic fund transactions. Sometimes you may even need to inform the bank of errors they have made.

Your accounting software will keep track of deposits that are in transit at the end of the month and checks that you wrote that have not cleared yet. You will need to research and properly clear up any very old outstanding deposits or payments, as these may distort your financial reports. Old outstanding items may also indicate a problem with duplicate items.

For those who use bank feeds, you may be tempted to think that reconciliations are no longer necessary. This is not true! While bank feeds will allow you to perform your reconciliation more efficiently, you still must scrutinize them monthly in order to catch errors that you or the bank have made.

How often should I reconcile my checking accounts?

You should reconcile your account monthly, but if there are a large number of transactions then it is a good idea to reconcile more frequently. This is called interim reconciliation because you do not complete the reconciliation until the end of the month.

Doesn’t the software I use reconcile my accounts for me?

Although technology has greatly advanced, no software currently exists that has the capability of reconciling your bank accounts for you.

What are the steps to reconcile my accounts?

Below are the general steps to reconcile your bank account.

  1. Have your bank statement in front of you.
  2. In your accounting software, enter any manual checks and all electronic transactions from the statement if you are not using bank feeds and if they aren’t already entered.
  3. In your accounting software, enter the ending statement balance and date.
  4. In the accounting software, you will check off the deposits and payments that have cleared and match the detail shown on the bank statement. If you are using bank feeds, the software typically shows those bank feed items as already cleared.
  5. As you check off cleared items, notice that the difference between the bank and the software approaches zero. When it is zero, you can click Reconcile and print the Reconciliation Report. Next month, the software will no longer show the items that you have marked as cleared in the reconciliation screen.

If the difference is not zero:

  1. Figure out whether the difference is in deposits or payments by comparing the totals on the bank statement to the totals in the software.
  2. Look for possible duplications, transpositions, omissions, and old uncleared items that need to be researched and cleared up.
  3. Use a highlighter or colored pen to mark the cleared items on the statement.
  4. If the beginning balance has changed you can suspect that you deleted a formerly cleared transaction. Pay attention to any warning that says you are about to change a previously reconciled transaction and call for help if you are not sure how to resolve it.
  5. Despite rigorous safeguards, banks can make mistakes. For example, a bank withdrew $25,000 from a business checking account, but the check was only for $2,500. In this particular situation, the business owner caught the error while they were reconciling their account.
  6. Despite being careful, it is easy to reverse numbers when entering data and then duplicate the transaction, especially if using bank feeds.
  7. Use the Undeposited Funds feature to batch deposits so that they match the statement.

Credit cards must also be reconciled with a similar process. During the process, you would make sure all purchases were authorized and that the remaining balance owed on the balance sheet is correct.

Need help with reconciling your accounts? Contact the Client Accounting Services team at Trout, Ebersole & Groff, LLP for help!

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