Bank Reconciliation: A Simple Guide for Small Businesses
Bank reconciliation is a vital part of small business bookkeeping. It helps ensure that your bank statement matches your business records, identifying any errors, missed transactions, or fraudulent activity. In this guide, we’ll walk you through the purpose of a bank account reconciliation, the steps to complete one, and provide valuable tips and an Excel template to make the process easier. Whether you’re doing it manually or using accounting software, this page will help you maintain accurate and up-to-date financial records.
The bank account is listed as a current asset on the Balance Sheet. It is essential to reconcile all the business accounts, including the current account, savings and credit card accounts.
If you are using accounting software with a bank feed or can import the transactions, it will be easier to have the correct figures in your accounts. Bank feeds are generally accurate; however, mistakes can occasionally occur. Completing the reconciliation will ensure that the figures are correct; however, it will not detect if the transaction is posted to the wrong account code.
How often do I Reconcile Bank Statements?
It will depend on the size of the business, the frequency of accurate reports and how tight cash flow is, as to how often it is required. A larger company may need a bank reconciliation daily or weekly, but a small business may only need to complete it monthly.
It is worth trying to complete your reconciliation regularly when your bank statement is available. Banks are now reducing paper usage and, in some cases, not sending out account statements. If this is the case, you can download them from the online banking system.
A bank reconciliation is required for year-end accounts preparation to ensure that the records in the accounting system match those in the bank. The figure is part of the balance sheet.
If you are VAT-registered, ensure that the reconciliation is completed before submitting the return. It ensures that all the transactions in the bank are posted to the accounts. Don’t rely on this alone, as you need to ensure that other transactions not listed on the bank records are also included.
If you have multiple bank accounts or credit cards, you will need to prepare a bank reconciliation for each one.
Why are Bank Reconciliations Prepared?
Comparing your bank statement to the cash book will ensure that all your bank deposits and bank withdrawals are posted and that all your bank transactions are complete. If you compare the statements to the accounts and notice a difference in the balance figure, bank reconciliation is required.
There may also be items on your bank statement that can only be identified by checking them; these include bank charges, bank interest, and payments made via direct debit or standing order.
Any errors in the statement period will also be found and corrected. These errors may include the following:
- Writing or posting the wrong amounts to the cash book or general ledger.
- Double Payments or missed payments.
- Help detect fraud or theft.
- Keeping track of accounts receivable and payable
Advantages of Using Accounting Software for Reconciliation
Bank reconciliation software is a digital tool that enables businesses to quickly and accurately match their accounting records with their bank statements. It automatically imports bank transactions, compares them to your bookkeeping entries, and highlights any differences.
They reduce manual work, speed up the reconciliation process, and minimise the risk of errors. Popular examples include QuickBooks, Xero, and Sage UK, which integrate directly with your bank to keep your accounts current. An example is below:
The primary advantages of using accounting software include importing a bank statement or utilising a bank feed. Although a bank feed saves time, I have also encountered instances where it posts duplicate transactions.
Advantages of Having a Separate Bank Account for Business
When completing a bank reconciliation statement, you will need to complete one for each bank account that the business has.
If you don’t have a separate business bank account, it’s worth opening one for the following reasons.
- Easier to complete reconciliation statements.
- It keeps personal and business finances separate.
- Easy to see the bank balance.
- If using accounting software, most include a bank feed, which saves time on entering data.
- All the bank transactions are in one place.
Bank Reconciliation Statement Template
A bank reconciliation worksheet will calculate the differences between the bank statement and the cash book. Some of these differences may be due to timing, especially near the statement end date.
Timing differences can occur for the following reasons:
- The time involved in the post
- Payments can take several days to clear the bank
- Banking receipts that are completed after the bank close-off time.
Here is an example of an Excel bank reconciliation statement.
The example shows two unpresented cheques and one sales receipt. The reconciled balance then equals the bank balance.
The example shows two unpresented cheques and one sales receipt. The reconciled balance then equals the bank account balance.
Bank Reconciliation Process
Here is a bank reconciliation process to help you reconcile to your bank statement:
- Check that the opening balance of the records is the same as the bank statement
- You will need to check off (tick) any payments and receipts which appear in both the cash book and bank statement.
- Make any amendments to the cash book as required. These are items that appear on the bank statement but are different or missing from the cash book.
- On the Bank reconciliation template, list any payments which are not cleared.
- List any payments received which have not been cleared.
- Fill in the totals from the cash book and bank statement onto the reconciliation statement.
- When all this has been completed, the bank’s ending cash balance should equal the reconciled balance.
If there is any discrepancy, review it again; it is sometimes easy to overlook small mistakes. It is sometimes helpful to determine the exact amount of the difference, making it easier to identify and address. To do this, take the balance from the reconciled statement and deduct the balance as per the bank.
Free Bank Reconciliation Statement in Excel
We have produced a free printable Excel bank reconciliation statement worksheet that you can download and use for any small business.
By downloading the Excel Reconciliation template, you agree to our licence agreement, allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way.
Bank Reconciliation Statement Summary
Bank reconciliation is a crucial component of maintaining accurate and healthy business finances. Whether you’re doing it manually or using accounting software like Xero, QuickBooks, or Sage, regularly reconciling your accounts helps you spot errors, prevent fraud, and maintain a clear picture of your cash flow.
By making reconciliation a routine part of your bookkeeping, you’ll save time, reduce stress, and ensure your financial records are always up to date, setting your business up for success.
Return from bank reconciliation statements to the bookkeeping basics page.
