Bank reconciliation happens when you compare your records to the bank’s records. You should do a bank reconciliation at least every month to make sure you know what’s happening with your accounts. Let’s review how bank reconciliation works and why it is so important.
What is Bank Reconciliation?
Bank reconciliation involves comparing your record of transactions and balances to the bank’s record of transactions and balances. You go through every transaction in your account and make sure you and the bank agree on the transaction.
Some items, such as outstanding checks, won’t show up on your bank statement because the bank doesn’t know about them yet. Likewise, there may have been electronic transfers at the bank that you didn’t know about. Bringing all of these things into the open is what bank reconciliation is all about.
If you’re familiar with balancing your checkbook, then you’re familiar with bank reconciliation. You’re essentially doing the same thing for the same reason.
Why Hassle With Bank Reconciliation?
It’s important to go through the process of bank reconciliation. If you don’t, you’re taking a few risks.
Without bank reconciliation, you may not have a clear idea of how much cash is available in your account. You might bounce checks and incur overdraft charges. With electronic check clearing, you don’t have much time to get funds into your account when you write checks.
Without bank reconciliation, you also expose yourself to risk. People may be stealing from your account. If you never look through each transaction, you’ll never know about it. If you don’t notify the bank quickly enough, you may be out of luck.
The same goes for bank mistakes. With regular bank reconciliation you can find problems quickly and make them go away.
Tools for Bank Reconciliation
You don’t have to use paper and a pencil to do bank reconciliation. There are plenty of ways to have your computer do the work for you. The links below should make bank reconciliation a little bit easier: