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chapter four of six

How to do bank reconciliation

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Accountant & bookkeeper guides > How to do bookkeeping > How to do bank reconciliation

Humans aren’t great at punching numbers. In fact, up to 90% of spreadsheets have keystroke errors in them. Bank reconciliation is a way to check and do quality control on your books.

What is bank reconciliation?

When you compare your record of transactions against your bank’s, you’re doing bank reconciliation. Your entries should match up with their records.

Bank rec

Why does it matter?

Bank reconciliation helps you find and fix data entry mistakes or missed transactions. It’s also good for detecting wrong payments or fraud. As you run through the transactions, you can also assign them to the correct business account (if you haven’t already) and flag tax deductible expenses for when you file a return.

How to do bank reconciliation

Bank reconciliation isn’t complex. Many people open their business ledger on one screen and a bank statement for the same period, then cross-reference. If you can’t find a match for a transaction, you need to figure out why and make adjustments so that both records mirror each other.

Modern bank reconciliation

Accounting software speeds up bank reconciliation by pulling transaction data directly from your bank through a secure online connection. That removes keystroke errors for a start. 

The software then presents the transactions on a screen, asking you to verify them and assign each one to an account. The fields are often pre-filled based on past transactions or exact matches to sales invoices, purchase bills, or bank rules that have been set up for speed and consistency. You just have to click to confirm what’s suggested.

Bank rec

Figure 3, Modern software makes bank reconciliation a click-to-confirm job.

You can still manually enter things like expenses that aren’t captured by the business bank account. And you can have the software retrieve transaction data from point-of-sale and invoicing systems, or receipt scanners. 

Chapter 5: How to manage accounts receivable

Accounts receivable is money you’re owed. That makes it critical to business health. Learn what’s involved and how to stay on top of it.

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