Your bank statement is the one record you do not control. Matching your books to it, every month, is the quickest way to know your books are complete and correct.
What reconciliation involves
- Take the closing balance on the bank statement.
- Take the closing balance of that bank account in your books.
- Match each transaction in the statement to an entry in the books.
- List and explain everything that does not match.
- Correct the books where they are wrong.
Common differences it catches
- Missing entries. Bank charges, interest, or receipts nobody recorded.
- Duplicates. The same payment entered twice.
- Timing differences. Cheques issued but not yet cleared, or deposits in transit.
- Wrong amounts or accounts. An entry posted to the wrong account or with a typing error.
- Unexplained transactions. Payments nobody recognises, which may need urgent attention.
Why monthly, not yearly
A difference found within a month is usually easy to explain: the people involved remember, and the documents are at hand. A difference found at year end, mixed with eleven other months, can take days to trace.
Monthly reconciliation also makes everything downstream more reliable: GST returns, cash flow reports and the conversations you have with investors and lenders.
Cards, wallets and gateways too
The same principle applies to business credit cards, payment wallets and payment gateway settlements. Gateway settlements in particular often arrive net of fees and refunds, and need matching back to the original sales.
Reconciliation as part of bookkeeping
At FigureWise, every bank, card and wallet account is reconciled every month as part of bookkeeping, before any return is filed or any report is prepared.
