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.
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.
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.
Although technology has greatly advanced, no software currently exists that has the capability of reconciling your bank accounts for you.
Below are the general steps to reconcile your bank account.
If the difference is not zero:
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!