How to Reconcile a Bank Statement
Episode #5 of the course Basics of bookkeeping by Kaitlin Kirk, CPA
Yesterday was all about expenses, and the day before that, we talked about income and cost of goods sold.
So, now that you’ve got your transactions entered into your accounting app or spreadsheet, we need to make sure that we didn’t miss anything or include something we shouldn’t have and that our records match the bank’s records.
If you’re using an accounting app for your bookkeeping, there will be a function to help you through this process. If you’re using a spreadsheet, it will be more manual but the process is the same.
Make a note of your opening balance on your bank statement. If you’re using Excel, you’ll need to type this in manually. If you’re in an app, it should have the opening balance in the system already. If the opening balance doesn’t match what your statement says, you’ll need to fix it so it does.
Next, you’ll need to record the ending balance. There’s usually a space for it in the reconciling screen of any accounting app. In a spreadsheet, I would put the ending balance somewhere near your last transaction of the month.
You’re going to match up the transactions from the bank statement to the transactions in your books, therefore describing the change in the bank account (the difference between the beginning and ending balance).
Grab your bank statement, and ensure that your accounting information is set to show you the same period as the bank statement. If your statement runs from the first of the month to the seventh of the month, for example, make sure you’re looking at the same time period in your accounting app or spreadsheet.
Start at the top of your bank statement, match up the first transaction to the corresponding transaction in your books, and check it off in your books. You can check it off on the bank statement too, but it’s important to do it in your books so you can identify if you have any transactions that don’t belong there.
Keep going down your bank statement until you get to the end.
If you’re in a spreadsheet, make sure that amounts coming out of your bank account are negative. Then sum all the transactions you’ve checked off and the opening balance number. Does it equal the ending balance? If so, you reconcile! Yay!
In an accounting app, you should be able to check off each transaction as you go. At the end, it should show you if you reconcile or not.
If you do, mark that month as reconciled and you’re done with that bank statement. It’s ideal to attach the statement to the reconciliation in some way, but as long as you know where the statement is, that doesn’t matter too much.
What if it didn’t equal the ending balance? That means either a transaction from the bank statement is missing or a transaction is in there that doesn’t belong. Are there any transactions that don’t have a checkmark? Were there any transactions on the bank statement that you couldn’t find in your books?
Maybe you had a transfer to another bank account or to a visa account. Those need to go into the books but aren’t revenue or expenses. The money just moves from one account to the other. If you transferred money to your savings account, for example, it would decrease the checking account and increase the savings account.
Make sure you’re reconciling every account that you have a statement for, every month. This is how you ensure that the books don’t have any extra transactions and that you didn’t miss anything.
Now that you have your income and expenses recorded and you know everything has been included properly, you can start using your financial information to answer questions and make data-driven decisions in your company. This will give you the questions to ask about the operations of your company and where you can make improvements.
Task: Reconcile one of your bank accounts, and keep notes about what worked, what didn’t, and how you solved any issues. Because this is a once-a-month task, it’s easy to forget how you solved problems last month.
Tomorrow, we’re going to start on reporting with the income statement. We’ll talk about what it’s for and how to get great information out of it.
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