Welcome to Financial Fancy. I’m Charese, the owner of Financial Fancy! If you’ve been following me for a while, you already know how important is to reconcile your accounts on a regular basis. This guide will walk you through the most common steps to help you do (and troubleshoot) your own bank reconciliation. Remember, the information provided in this guide is not intended as financial advice, but as a helpful resource. Let’s get started!
Understanding Bank Reconciliation
A bank reconciliation is a process that compares the transactions that have been recorded on a company’s books to the corresponding bank statement for that time period. This is typically done on a monthly basis. However, companies with a higher volume of transactions may benefit from doing their bank reconciliations more frequently.
Why is Reconciliation Important?
Reconciliation is a vital part of maintaining complete, accurate financial statements. Through this process, you can catch things like incorrect dates, transposed numbers, missing transactions, timing differences, fraudulent activity, and outstanding checks.
Steps for a Successful Bank Reconciliation
The first step to a successful bank reconciliation is getting organized. This involves downloading your bank statement for the month and opening up your bookkeeping software to the account you’ll be reconciling.
Next, you need to match your starting balances. The starting balance shown in your bookkeeping software should match the starting balance shown on your bank statement. If it doesn’t, you need to go back and reconcile a prior period.
Then, record your ending balance. When you begin reconciling in your bookkeeping software, you’ll need to enter the ending balance and statement date.
After this, reconcile each transaction. Go through each transaction shown on your bank statement (deposits, withdrawals, checks, fees, and interest) and make sure the amount and date have been recorded correctly.
It’s also crucial to adjust for pending transactions. You may have outstanding checks or uncleared deposits that aren’t reflected on your bank statement yet. Make any necessary adjustments during this step!
Finally, clear any discrepancies. Select all the transactions for the period and click reconcile. You should see a $0 balance. If you don’t, go back to step 4!
Troubleshooting Your Reconciliation
At times, you may encounter problems during your reconciliation. Here are some common issues and how to resolve them:
- If your beginning balances don’t match, review your bookkeeping to find the last period that you did have a match. Then, start the reconciliation process from the following period.
- If you're missing an exact amount from the bank statement, confirm that you entered the transaction in your books. If you did, confirm that the date is correct and it’s not recorded in the wrong period. Transposing your numbers can lead to a reconciliation difference that doesn’t match a transaction amount. Double-check your amounts!
- If your balance is off by a weird amount, you may have recorded a duplicate transaction. Once you’ve confirmed this to be true, remove one of the transactions.
- If your cleared deposits are higher on your books than the amount shown on your bank statement, you may have recorded a recent deposit that hasn’t cleared your bank statement yet. Similarly, if your withdrawals are higher on your books than the amount shown on your bank statement, you may have outstanding checks.
Let’s Work Together!
Feel free to reach out to us at CHARESE@FINANCIALFANCY.COM or call us at (804)491-8184. We look forward to helping you with all your financial needs.
Thank you for choosing Financial Fancy!
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