A Bank Reconciliation Should Be Prepared Periodically Because It Makes Your Life Easier

Sep 12, 2023

Nobody wants to deal with accounting errors, which is why it’s important to perform a bank reconciliation periodically within your business. Reconciliation is an important part of the accounting process, because it gives you the opportunity to catch any potential fraudulent charges and prevent future statement errors. You may be wondering, how often should I be performing bank reconciliation in my business? We’ve broken down the basics for you, from how to do an efficient bank reconciliation to exactly how often you should be reconciling your records depending on your situation. 

What is Bank Reconciliation?

In its most basic form, a bank reconciliation is the process of comparing business accounts to your bank statements, thereby verifying that all of your bookkeeping efforts are correct and up to date. In a perfect world, these records would always match, but any experienced business owner could tell you this may not always be the case. A bank reconciliation allows you to find and fix any internal errors, as well as catch any incorrect payments or potentially fraudulent activity before they become a problem. You can also identify any tax-deductible expenses as you go, and create a fully reconciled financial record that you will thank yourself for come tax season. Perhaps most importantly, a bank reconciliation will allow you to track the exact profitability of your business in real time. Who wouldn’t want to know exactly how much money they’re making? 

You probably already know the importance of keeping your business financials in one place; this keeps all transactions business-related and easier to track within your bank statements. Bank reconciliation will always be harder if your business and personal finances are mixed. If for whatever reason, your business accounts and bank transactions don’t match, it’s important to figure out why. Human error is usually the likely culprit, maybe somebody mis-typed some information in the business accounts, or a small transaction was missed. Regardless of the reason, performing a bank reconciliation can help you get things back on track. 

How To Do a Bank Reconciliation

Now that you understand the basics, let’s get into the nitty gritty of how to do a bank reconciliation. All you will need to get started is a copy of your business accounts and relevant bank transactions for the same timeframe. Once you have all the necessary records, you’ll walk through all your sales and expenses to make sure that your business accounting is on the right track. 

Find the date where your business account balance last matched your bank balance; this is your starting point, as that was the last time a bank reconciliation was performed. Then, you’ll start by going through all of your deposits. Make sure each deposit is reflected as income in your accounts, and clarify where this income came from. Was it a sale, a deposit, a refund? As you analyze your income, make sure that your records have a corresponding transaction in the bank. 

If anything is missing, you may be dealing with a bounced payment or something similar. 

Once you have finished with the income, you’ll move on to your withdrawals. If all has gone according to plan, your withdrawals should match your books. However, there can always be surprise expenses like banking fees that you may not have already accounted for, which is why bank reconciliation is always important. Just like you did with the income, match each outgoing business expense with the corresponding withdrawal in your account. If anything is missing, investigate why. There’s always a chance that a payment hasn't been cleared yet. If you used cash or a different account, that will need to be notated for accounting purposes as well. 

Just like that, you have performed a bank reconciliation. Pat yourself on the back for performing this essential task for your business! While bank reconciliation can certainly be tiring and tedious work, it will always be easier to fix financial blips as close to their occurrence as possible. If manual bank reconciliation isn’t something you have the time or mental energy to spare for, you could always use a bookkeeping service like ours to help you stay in your element as a business owner.

How Often Should I Do A Bank Reconciliation?

The frequency at which you perform bank reconciliation will depend on a number of factors, including the size of your business and the volume of money flowing in and out of your accounts. While you could likely get away with monthly or even quarterly reconciliation in the past, living in the digital age has shifted things. Between the rise in cyber fraud and ever-changing compliance requirements, making timely financial moves is more important now than it has ever been. As such, regular and thorough bank reconciliation has become a crucial and time sensitive task for small and large businesses alike. 

We encourage you not to phone it in when it comes to bank reconciliation; it may seem easier just to periodically check your balance and make sure it looks about right. Especially if you’re a contractor or running a small business, with less time to spare. Don’t fall for the trap of ease in this case, it can and will eventually cost you. By using lazy bookkeeping practices, you leave your business wide open to threats of fraud, banking errors or unauthorized withdrawals of your hard-earned money. Businesses don’t have the same protections as the average consumer when it comes to fraud, which puts the onus to catch and correct fraudulent activity on you. Without a firm handle on your finances, you also run the risk of bouncing checks or having electronic payments declined, which is never a good look for any business. 

As a general rule, every business should be performing a bank reconciliation at least monthly, to ensure they are keeping on top of their books. While this doesn’t necessarily need to be done at the end of the month if that happens to be your busy period, having a set time where reconciliations are performed is encouraged to help keep a regular rhythm to your bookkeeping practices. 

However, depending on the volume and nature of your business, a daily bank reconciliation may be in order. If you are in an industry with a higher fraud risk, it would obviously be in your best interest to keep an extra close eye on your books. The same would be true if your business is seeing a lot of cash flow in and out on a daily basis, a daily reconciliation would be advisable to ensure everything is flowing the way it should be. While bank reconciliation may be daunting, it may be an important way to protect the financial health of your business. 

Not sure how often to reconcile your books? One of our business consultants can help you find the best timeline for your specific circumstances.

How Does Bank Reconciliation Make My Life Easier?

While we have focused mostly on the what and the how of bank reconciliation, you are likely wondering how this tedious and time-consuming process can possibly make your life easier. The good news is that the benefits of bank reconciliation far outweigh the stress that performing them may cause. 

Firstly, you will be grateful for your thoroughly reconciled books come tax time. By staying on top of every dollar going both in and out of your account, you will be able to account for any tax-deductible expenses as they come in and create the most accurate representation of the cash flow of your business in real time. This allows you to be ahead of the game while filing your returns and saves you both time and stress during everyone’s least favorite season; tax season. 

Secondly, regular bank reconciliation simplifies your accounting practices overall. Knowledge is power, especially when it comes to money, and you can only make the best fiscal decisions for your business if you know exactly where you’re at. With a comprehensive picture of your finances, you know exactly how much capital you have available to invest in marketing and other channels that will keep your business thriving. When you perform bank reconciliation will also help you avoid potentially embarrassing blunders like bouncing a check, because you know exactly how much money is in your business account.

Lastly, when you perform bank reconciliation, you protect yourself and the business you’ve worked so hard for. Unfortunately, the rest of the world may not operate with the same integrity that you do, so keeping a sharp eye out for fraud, theft and other unauthorized money moves within your business will always be in your best interest. You work hard for your money, keep it exactly where it belongs with periodic bank reconciliations. 

Have further questions about how to best manage your money? Check out our resources and services for tips, tricks and hand-on help with your business finances. Better yet, contact us and we’ll help point you in the right direction.


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