Whats Account Reconciliation and Why Does It Matter?


Reconciling a bank statement involves comparing the bank’s records of checking account activity with your own records of activity for the same account. The purpose of doing so is to locate any differences between the two versions, and to update your records to match those of the bank, as well as to spot any errors made by the bank. In brief, a bank reconciliation is needed to ensure that your checking account balance is correct.

In this chart of accounts example of electronic banking, many people believe completing a bank reconciliation is no longer necessary. This type of reconciliation happens when a parent company unifies all the general ledgers of its subsidiaries to eliminate intercompany flows and minimize bank transaction fees. This process helps identify inconsistencies between subsidiaries and unrecorded transactions or balances on the books of group companies.


You also can catch merchant errors more quickly if you reconcile regularly. If a vendor charges you the wrong amount for a purchase, you may not otherwise know if you don’t balance your account at least once a month. Some businesses, which have money entering and leaving their accounts multiple times every day, will reconcile on a daily basis. The balance recorded in your books and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. Reconciling your bank statements won’t stop fraud, but it will let you know when it’s happened.

Check for Bank Errors

Your first step to prepare for a thorough account reconciliation is to compare your internal account register to your bank statement. Go through and check off each payment and deposit on your register that matches the statement. Make a note of all transactions on your bank statement for which you don’t have any other evidence, such as a payment receipt or check stub. There are a number of programs availablethat will automatically track your banking information for you, such as Mint.com and Personal Capital. These aggregators allow you to see an overview of all of your financial accounts in a single place, from your checking and savings accounts, to your loans, to your college savings account. Such an aggregator will do the tracking and recording for you, so all you’ll have to do is check it regularly and compare it to your banking information to make sure everything balances.

You may overdraw your account if there is an outstanding check that you forget about. In addition, it is harder to find banking errors if you do not keep your own records, since you will be working from the bank’s numbers at all times. About once every two weeks , log on to view your bank account and compare your bank’s total withdrawals and deposits with your own records. One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts.

How To Do A Bank Reconciliation: Step By Step

In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench). Reconciling your general ledger accounts is one of the most overlooked tasks in accounting. Learn why the reconciliation process is so important and how to get started reconciling accounts today. Connect your Venmo account to MoneyMinder PRO to directly download transactions, saving you time and effort. To avoid monthly fees for a checking account, some banks require…


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Can I pay someone to reconcile my accounts for me?

These discrepancies happen when human error causes there to be differences between the general ledger and the subledgers. Don’t forget to account for any fees that you pay and any interest that you earn. This post is to be used for informational purposes only and does not constitute legal, business, or tax advice.

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This is explained by the fact that the manual accounts reconciliation process is slow in identifying transactions that actually require special attention. Only by posting all necessary secondary entries can you achieve accurate reconciliation. After this step the general ledger will be updated for the reconciliation period. Make sure that the amounts listed on your checking account match the amounts on each deposit or payment. For example, if you deposited $200 in cash into your account on Wednesday, you should make sure that the amount of the deposit on the Wednesday transaction matches the $200. The deposit could have been received after the cutoff date for the monthly statement release.

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This means you have to remember to write down transactions when you get home, rather than record them as you make them, which is onerous and also a good way to forget transactions. For each debit, you’ll subtract the amount of the transaction from your balance. You’ll continue doing this until you have recorded all your transactions.

bank transactions

If you’re not using accounting software, you’ll have to prepare a reconciliation form, which can be as simple or detailed as you like. The form needs to provide you with enough space to add any outstanding items that will resolve any discrepancies between the two balances. One of the most important things you can do to keep your general ledger accurate is to perform a bank reconciliation monthly. Letting the bank reconciliation process slide can result in out-of-balance books, missing payments, unauthorized charges never being discovered, and missing deposits. Add or subtract all reconciling items from the bank’s ending cash balance for your account, and compare the result to your own record of the ending cash balance. Otherwise, there is still a reconciling item within the current period that you have not yet identified.

To do this, businesses need to take into account the bank charges, NSF checks and errors in accounting. Bank errors are mistakes made by the bank while creating the bank statement. Common errors include entering an incorrect amount or omitting an amount from the bank statement. Compare the cash account’s general ledger to the bank statement to spot the errors. In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side. The bank sends the account statement to its customers every month or at regular intervals.

  • The analytics review method reconciles the accounts using estimates of historical account activity level.
  • For example, a restaurant or a busy retail store both process a lot of transactions and take in a lot of cash.
  • Aggregators can be a great tool for anyone who wants to get a big-picture sense of their money.
  • Many business experts come to the conclusion that manual bank account reconciliation can be very expensive for business owners.
  • It may be that only old-school account holders still record and reconcile paper checkbooks by hand.

These items are typically service fees, overdraft fees, and interest income. You’ll need to account for these fees in your G/L in order to complete the reconciliation process. When you’re completing a bank reconciliation, the biggest difference between the bank balance and the G/L balance is outstanding checks.

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Go through the miscellaneous account debits and credits listed on the bank statement, and verify that you have recorded them in your own records. It is quite possible that none of these items have been listed, so be sure to adjust your cash balance for these items before proceeding. Examples of miscellaneous items are fees for bounced checks, overdraft charges, account maintenance fees, and charges for additional check stock ordered by you. The transactions should be deducted from the bank statement balance. Also, transactions appearing in the bank statement but missing in the cash book should be noted.

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Reconciliation between the bank statement and the general ledger allows both statements to complement each other. Errors and omissions in accounting are easily detected and rectified. What’s more, regular bank account reconciliation will minimize the likelihood of receiving fines or penalties that generally could be avoidable. Doing this every month will ensure that you’re aware of any potential issues as soon as possible and that they can be resolved quickly and easily. If, on the other hand, your account doesn’t match the ledger, it’s likely that you have some type of error. Typically, checking accounts are interest-bearing and offer a variety of ways to earn interest.

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