Chapter 4

How to do bank reconciliation

Humans aren’t always perfect at punching numbers. Bank reconciliation is a way to 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.

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.

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.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

How to do bookkeeping

Bookkeeping includes everything from basic data entry to tax prep. Let’s look at the core jobs and see how they’re done.

Download the guide on how to do bookkeeping

Learn about the eight core bookkeeping jobs, from data entry to reporting and tax prep. Fill out the form to receive the guide as a PDF.

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