How do you reconcile a bank account?

Reconciling your bank account is beyond vital! 

If you’re looking at your accountancy software, any missed entries could mean that figure is heavily inflated or wildly understated, making it impossible to make informed decisions about managing expenditure.

Reconciliation means simply matching transactions in your bank account feed to actual receipts or income.

Your bank account in your accounting software relies purely on transactions you’ve entered. For example, if you’ve received a substantial payment but haven’t reconciled the event, your shown balance will be out of sync by that same amount.

In this guide, we’ll answer these commonly asked questions:

• What is a bank account reconciliation?
• How do you reconcile a bank account?
• Why is it so essential to regularly reconcile your accounts?
• How can you save time reconciling business accounts?

Reconciliation is a precise process. You match the amount shown on your bank statement or your real-time bank account login with the figures displayed on your accounting software.

Suppose you had £1,000 in your account last week and have spent £500 in the interim; until you enter that £500 of expenditure to tidy away the unreconciled transaction, your accounting software will show the same – incorrect – £1,000 balance.

This task is simple but can be hugely time-consuming. 

However, you need to ensure that you’ve reconciled accounts and other spending sources such as company credit cards to access a realistic report of the cash available.

Next, we’ll explain how to conduct an account reconciliation, breaking it into four stages.

The first step is to enter a transaction into your accounting software for every receipt, cash withdrawal or account activity since your last reconciliation.

If you have an automatic bank feed, you will see a list of unreconciled events (income and outgoing). 

You enter the appropriate receipt next to each one, including an account to charge the expense to, so the cost is recorded correctly in your profit and loss.

Every software is slightly different, but you’ll usually be able to separate earnings from expenses by looking for:

• Negative figures shown for deductions or outgoing spending.
• Income in one column, and costs in the other.
• Different colours indicating what type of transaction the bank feed has recorded.

Some expenses, such as bank interest charges, might not have a corresponding physical receipt to enter, so you’ll need to work through every expense transaction one at a time and enter the information manually if necessary.

The differences between cash and accrual accounting won’t impact your account reconciliation since you’re entering live expenses rather than accounting for accrued costs you’re expecting to incur. 

The same concept applies to reconciling your earnings. 

If you haven’t raised invoices on your accounting software, you’ll need to enter the details of each transaction manually to show your software what the income relates to.

If you have any cash or cheque receipts you’ve paid into your bank, you’ll follow the same process of entering the customer details, breakdown of the goods or services sold, and include VAT where applicable.

We mentioned above those occasional expenses that don’t tie up to a specific receipt or invoice. 

These usually relate to bank charges, refunds, or other transfers for which you haven’t produced any paperwork.

There is an easier way (which we’ll explain shortly!), but the normal process is to enter a manual expense with the bank’s name and then allocate the cost to your Bank Charges in the Chart of Accounts so that your account is fully reconciled.

You should now have an accurate total of everything listed on your bank account and accounting records, so each debit and credit is listed and categorised.

If you’ve noticed any differences between your bank account and financial records that you can’t identify, you can:

• Double-check that there haven’t been any errors in an automatic bank feed (at times, these can duplicate and skip transactions).
• Contact your bank to verify any transactions you don’t recognise, or that could be potential fraud.

Most businesses reconcile their bank account once a month as a minimum, but weekly reconciliations are advisable if you’re relying on your accounting software to deliver accurate reports.

Regular reconciliations are strongly advisable – if you count up the individual transactions that pass through your bank account, you’ll see why this task can become overwhelmingly huge if left right up to year-end!

We’d also recommend a regular reconciliation process so you can keep track of overdue customer invoices and chase up accordingly.

Account reconciliations can become an increasing burden as your business grows. However, Countingup is an app that offers a straightforward solution to take the sting out of the task.

Countingup is an all-in-one business current account and software service, with automated reconciliation functionality delivering up to date, precise accounting information in real-time.

Engineered specifically for small businesses, the financial administration app mitigates any need for manual reconciliations with advanced, intuitive tech that you don’t need to be an accountant to understand.

Automated features such as expense categorisation and invoicing tools handle all your debit and credit transactions (with zero effort!), and smart tools like receipt capture record your expenses, even when you’re out on the road.

Whether you’re a new business or an experienced manager, the option to see tax estimates and comprehensive profitability figures means you stay on track of performance well before the financial year-end.

If you’re keen to implement on-the-spot reconciliations and claim back your time to focus on running your company, you can find out more here and register for free to transform your accounting functions!