Reconciling your bank accounts is a critical step in maintaining accurate financial records for your business. It ensures that your internal cash records match your bank statements, helping to identify discrepancies, prevent fraud, and maintain a clear financial picture. This guide will walk you through the process step-by-step.

Why Reconcile?

Regular bank reconciliation offers several benefits:

• Accuracy: Confirms that your cash balance is correct.
• Fraud Detection: Helps identify unauthorised transactions or errors.
• Error Correction: Catches accounting errors in your books or by the bank.
• Improved Cash Management: Provides a clearer understanding of your available funds.
• Audit Readiness: Ensures your financial records are clean for audits.

What You'll Need

Before you begin, gather the following:

• Your business's bank statement for the period you are reconciling – export this into excel for ease
• Your internal cash ledger or accounting software's cash account summary for the same period.
• Any outstanding items, deposits in transit or other relevant transaction records.

The Reconciliation Process

Follow these steps to reconcile your bank accounts:

 Step 1: Compare Deposits

1. Bank Statement Deposits: Go through each deposit listed on your bank statement.
2. Internal Records: Match these deposits to the deposits recorded in your internal cash ledger or accounting software.
3. Check Off: As you find a match, check off the deposit on both your bank statement and your internal records.
4. Identify Discrepancies: Any deposit on your bank statement not found in your internal records, or vice versa, is a discrepancy that needs investigation. These are usually deposits in transit (recorded in your books but not yet by the bank) or bank errors.

Step 2: Compare Withdrawals and Payments

1. Bank Statement Withdrawals: Review all withdrawals and electronic payments (EFTs, debit card transactions) on your bank statement.
2. Internal Records: Match these transactions to the withdrawals and payments recorded in your internal cash ledger.
3. Check Off: Check off each matched transaction on both documents.
4. Identify Discrepancies: Note any transactions on your bank statement not in your records (e.g., bank service charges, automatic payments) or transactions in your records not on the statement (e.g., outstanding items)

Step 3: Adjust Your Cash Balance (Internal Records)

Once you've compared all transactions, your internal cash balance will likely need adjustments for items identified on the bank statement that you hadn't recorded yet.

Typical adjustments include:

• Bank Service Charges: Deduct these from your cash balance.
• Interest Earned: Add this to your cash balance.
• NSF (Non-Sufficient Funds) Deduct the amount of any returned payments from your cash balance and record them as accounts receivable from the customer.
• Errors: Correct any errors you've made in your internal records.

 These adjustments should be recorded as journal entries in your accounting system.

Step 4: Adjust the Bank Statement Balance

The bank statement balance also needs to be adjusted for items your bank isn't aware of yet, but you have already recorded. These are:

• Deposits in Transit: Add these to the bank statement balance. These are deposits you've made and recorded but the bank hasn't processed by the statement date.
• Outstanding items: Deduct these from the bank statement balance. These are transactions you've issued and recorded but haven't yet cleared the bank.

Step 5: Verify Reconciliation

After making all adjustments, your adjusted cash balance (from your internal records) should equal your adjusted bank statement balance.

If the balances don't match, carefully re-examine your work from Steps 1 through 4. Look for:

• Typographical errors.
• Missed transactions.
• Incorrect amounts.
• Mathematical errors.

Tips for Effective Reconciliation

• Reconcile Regularly: Monthly reconciliation is ideal.
• Keep Good Records: Ensure all transactions are immediately recorded.
• Segregate Duties: If possible, have one person handle cash receipts and another perform reconciliation.
• Automate: Utilise accounting software to streamline the process (Xero, MYOB, QuickBooks etc)
• Investigate Discrepancies Promptly: Don't ignore differences, as they can indicate serious issues.

By following these guidelines, you can ensure your bank accounts are accurately reconciled, providing a solid foundation for your business's financial health.

Further Resources

• Contact your accountant or financial advisor for personalised advice.