Reconciling a bank account is the process of matching your financial records with the information on your bank statement and making sure they match up. Regular bank reconciliations allow you to maintain a clear picture of your financial health, correct any errors in your own accounting, and detect any potential fraud or bank errors as early as possible. Below, you’ll learn what it means to reconcile your bank account and how to do it step-by-step.
What Does It Mean To Reconcile a Bank Account?
The term bank reconciliation is often used in business, where it refers to a process that compares a company’s bank statements to its accounting records to ensure that all transactions are accounted for. If you’re a small business owner, you’ll want to reconcile your bank account by matching the balances in your company’s accounting records to the corresponding information on your business bank statement. The goal is to find out if there are any differences between the two cash balances. If there are, you then need to recheck your company’s accounting records.
In personal finance, reconciling a bank account is similar to balancing a checkbook: You compare the transactions in your own records (such as a check register, accounting software, or personal finance app) to the ones on your bank statement to make sure the balances line up and if they don’t, find out why.
Whether you’re doing a business or personal bank reconciliation, this process helps you identify any discrepancies, such as forgotten transactions, bank errors, or unauthorized charges. By regularly reconciling your checking account, you can maintain accurate financial records and stay on top of your financial health.
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What Are the Steps?
Reconciling a bank account might sound daunting, but it’s actually a relatively quick and simple process. And the more often you do it, generally the easier it gets. Here’s how to reconcile a bank account in four steps.
1. Gather Necessary Documents
To get started, you need to gather all of your banking records, including:
• Your most recent bank statement (mailed or printed from your online account)
• Your check register or accounting records
• Any transaction receipts (such as ATM receipts, receipts from debit card purchases, etc.)
You’ll also want to have a calculator, or your mobile phone, handy.
Recommended: How to Balance a Bank Account
2. Compare Balances
If you’ve been keeping a running tally of your checking account balance in your check register, personal finance app, or other accounting tool, take a look at the current balance in your records and compare it to the final balance in your bank statement.
If the numbers are the same, your bank account is essentially already reconciled — nice work! While that’s good news, you may still want to go through your transactions to get an overall sense of your monthly cash flow — how much came in and went out over the month and if your spending aligns with your short- and long-term financial goals.
If the amounts are different, however, you’ll want to proceed to the next step.
3. Verify Deposits and Withdrawals
Here, you’ll compare your records with those on the bank statement side-by-side. Go through all the deposits and withdrawals in your records one by one and make sure they match those on the bank statement, looking at both the dates and the transaction amounts. As you verify each transaction, check it off in your records.
It’s not unusual to find transactions on your bank account statement that are not listed in your records. If your bank charges any monthly maintenance fees or other types of fees, for example, they may not be reflected in your own accounting. Your statement may also include interest earned on your checking account during the statement period.
If you find any transactions in your records that are not on the bank statement, it could mean they haven’t cleared the bank yet, or there may be an error that needs further investigation.
4. Investigate Discrepancies
If you find a discrepancy between your records and the bank statement that doesn’t make sense, you’ll want to investigate further. Here’s how:
• Re-check your math. Ensure there are no addition or subtraction errors in your calculations.
• Look for missing transactions. Identify any transactions in your records that are missing from the bank statement or vice versa.
• Verify outstanding transactions. Some transactions may not have cleared yet. This could result in a discrepancy between your balance and the balance on the statement. Ensure you account for any checks or payments that are still outstanding.
• Contact your bank. If you find any unauthorized or incorrect transactions, contact your bank immediately to report the issue.
Maintain Regular Reconciliation
Once you successfully reconcile your bank account, it’s a good idea to do it on a regular basis. This can help you stay on top of how much money you have in your account and avoid overdrafts, as well as catch errors before they develop into larger problems. Here are some tips that help you stay on track.
• Set a schedule: It’s a good idea to reconcile your bank account monthly, ideally shortly after receiving your bank statement. This allows you to catch and address any discrepancies promptly.
• Use technology to simplify the process: Utilizing accounting software or personal finance apps can streamline the reconciliation process. Many of these tools can automatically import transactions and help you match them to your records.
• Stay organized: Keeping meticulous and well-organized records throughout the month and having a system for storing receipts and financial documents, makes reconciliation easier.
Recommended: How Long Should I Keep Bank Statements?
The Takeaway
Reconciling your bank account can be an important part of financial management. By keeping accurate records and regularly reviewing your transactions, you can ensure that your finances are in order and avoid potential issues down the line. Using technology and staying organized can further streamline the process, making it easier and more efficient. By making bank reconciliation a regular habit, you’ll be better equipped to manage your money and achieve your financial goals.
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FAQ
How often should you reconcile your bank account?
It’s a good idea to reconcile your personal or business bank account at least once a month, typically after you receive your bank statement. Regular reconciliation helps ensure your records match the bank’s records, allowing you to spot and address any discrepancies promptly.
What should you do if you find a discrepancy?
If you find a discrepancy while reconciling your bank account, comb through your records and the bank statement for any errors or missing entries. The bank statement may have transactions (like interest or fees) that explain the difference, or your records may show transactions that haven’t cleared yet.
If you can’t clear up the discrepancy, contact your bank immediately to report the issue and provide relevant details. Promptly addressing discrepancies can help prevent potential problems, such as overdraft fees or fraudulent activity, from escalating.
Can reconciling your account help prevent fraud?
Yes, reconciling your account regularly can help prevent fraud. By comparing your records with your bank statement, you can quickly identify any unauthorized or suspicious transactions, no matter how small. Early detection allows you to report fraudulent activity to your bank promptly, reducing the risk of further unauthorized transactions and potential financial loss.
Regular reconciliation also helps you become more aware of your account activity and spending patterns, making it easier to spot anomalies that could indicate fraud. This proactive approach can help safeguard your finances and maintain account security.
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