Bank Reconciliation

Bank Reconciliation is the most important thing any bookkeeper needs to do. It is the final check of a set of books against the bank’s version of those books.

Bank reconciliation is the process of comparing two statements against each other. One is from your bank, the other is from your books.

At the end you discover missing transactions from a set of books and missing transactions from the bank.

All things being equal, if the books match the bank (up to some previous date) then you are good to go.

There is a simple way to get bank reconciliation right every time and the following procedure will ensure it happens.

Bank Reconciliation Step by Step

  1. Have a print out of your bank ledger account (that is, the transactions you have written in your set of accounts).
  2. Have a print out of your bank statement (the one the bank sends you, i.e. what THEY think your transactions have been).
  3. Choose either of the above documents as your source document and stick with it (it doesn’t matter which one, as long as you do not change half way through – this is really important).
  4. Go down the list of transactions from whichever source document you chose (your statement or your bank’s statement). Starting from the top and going to the bottom (do not jump around, this is most important).
  5. Tick off ONLY the matching transactions on both documents. Remember to work strictly from your chosen source document from top to bottom (any other way will fail).
  6. When you have finished you may have un-ticked items on both documents. These highlight what is missing either from your bank statement (which means the transaction has not yet cleared) or from your books, which means you have forgotten to add them in (in which case you can now find the supporting documentation if any and add the missing transactions).
  7. There may also be errors in the amount fields which you can now correct. Remember that the bank can also make mistakes. Always check the source documents when in doubt (i.e. receipts and invoices).

The result we want is that the bank statement has all transactions ticked.

Our books, on the other hand, are unlikely to ever be in this state since there will almost always be transactions that have still to be presented or cleared. That is, you record a cash sale in your books, but you have yet to bank the money.

And finally, if the above is met, then we need to check that the bank statement equals the cleared balance in our books.

So add up all the cleared transactions and add in the closing balance from the last time you reconciled (which will be zero if you are starting from the beginning) and the total should match the balance on your bank’s statement.