Reconciliation is the process of comparing your bank statements with your accounting. This is also called bank reconciliation.
A reconciliation is very important as it checks that your bank statements—actual real life—matches with what you’ve bookkeeped.
Usually a bank reconciliation is done on a monthly basis—especially for contractors, freelancers or small business owners—but if you run a large business, you might need to do it several times a month.
If you have a holding company, it might be enough to do it every 6 months or every year.
Why reconciliation is important
When you compare your bank statements with your accounting, you can uncover discrepancies. These have to be fixed so that your accounting is correct and up-to-date, especially before the end of the fiscal year, when you have to submit the annual report.
If you do reconciliation periodically—and fix the errors you encounter—you won’t have to spend a lot of time trying to find sales documents and verifying old transactions.
Common errors you can find
Some of the most common error that you can uncover when you do your reconciliation is:
- You’ve forgotten to record some transactions in your general ledger
- You’ve recorded some transactions twice in your general ledger
- You’ve recorded transactions on the wrong date
The bank statement is your reference point here: Go through your general ledger and ensure that you’ve recorded all transactions in your bank account for this period. Check to see that you haven’t recorded anything twice or recorded it on the wrong date.
Hopefully, you’ll find a transaction that matches the discrepancy exactly. If not, you’ll have to keep investigating.
A good place to start if you can’t find the discrepancy is to look at card fees or bank fees. These amounts are usually small, and they’re easy to overlook, so make sure that you’ve recorded these.