Keeping accurate financial records is hugely important when running a business. After all, those are the numbers that decisions are made on. And a huge part of getting those figures right? Bank reconciliation.

In this ongoing series of accounting FAQs, we will cover what bank reconciliation means, why it’s important, and how to do it.

What does bank reconciliation mean?

Bank reconciliation is the process of making sure that the information in your accounting records matches the transactions in your bank account.

The opening and closing balances must match, as well as all of the individual transactions in between.

In theory it’s a simple concept, but it’s easy to make mistakes if you’re not careful, which is why bank reconciliation is best done on a regular basis. It saves you from having to check a whole year’s worth of transactions in one go, or needing to unpick old mistakes!

Why is bank reconciliation important?

Having transactions in your bank account which are missing from your accounting system gives an inaccurate picture of how much money you have in the bank. This could find you paying an incorrect amount of tax. Ouch!
 

Additional or missing transactions make things difficult when the time comes to do your taxes. Under-reporting profits leads to a whole world of HMRC misery, even if you didn’t do it on purpose. You could end up on the wrong side of some hefty fines.

If, on the other hand, you add in extra, or even duplicate, transactions, you might end up paying more tax than you should because your profit figures are skewed by the mistakes.

How do you reconcile banking records?

The first step is to get a list of transactions from your bank account(s). Then pull up your bookkeeping records, showing all of your income and outgoings.

These might be recorded on a spreadsheet, in which case the next job is to go through each transaction in your bank account, and ensure there is a record of it in your bookkeeping. Check the amount, the dates, and whether it’s income or an expense.

Or, you might use bookkeeping software like our very own Pandle. In that case, banking transactions are imported into the software using bank feeds or file imports, which make discrepancies much less likely.

You can even set up Bank Rules to match transactions to invoices automatically! We’re accountants, so we find ways of saving time and reducing errors very exciting.

Find out more about our online accountancy services, including bookkeeping.