How Often Should you do a Bank Reconciliation?

​Originally published: 7/31/2018

When we published this article originally, it was almost two years before the pandemic changed day-to-day accounting activities and the way bookkeepers and accountants work. What we have seen in the years since is an uptick in financial professionals asking questions around the timing for things like reconciliations and reporting. The monthly or quarterly schedules they once leaned on for basic accounting activities seem to have gone by the wayside in favor of more frequent, or even real-time, generation and analysis.

Bank reconciliations in particular are becoming increasingly important for organizations in today’s rapidly shifting business landscape. As financial transactions are getting more complex, cyber fraud is becoming more prevalent, compliance requirements are increasing, and timely financial decision-making is more important than ever before, bank reconciliations are at the epicenter of today’s accounting activities.

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As a result, we urge that you get acquainted with the ideas presented in this article around the importance of bank and credit reconciliations and remind yourself that the speed of business has increased considerably over the last 5 years, which means you should be doing accounting reconciliations more frequently than you used to. With that said, here are the most important things to know about reconciliations: 

​The most common question we hear is “What is a bank reconciliation?” followed immediately by “How often do I need to do a bank reconciliation?”
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Overstretched bookkeepers and accountants as well as owners and employees wearing many hats tend to de-prioritize the need for regular bank reconciliations because the process can be time consuming.

​They usually assume that doing some bank reconciliations sometimes will be enough to keep the books in order. In other cases, they may “reconcile-ish” the books – checking for similar numbers between the general ledger and bank account statements and only investigating instances where large discrepancies occur. However, this can be a costly mistake!

Risk
Companies that do not perform regular bank reconciliations run the risk of falling victim to fraud, unauthorized withdrawals, or bank errors. If left unchecked, these issues can lead to cash flow leaks that can hamper business operations and growth.

Furthermore, without doing periodic bank reconciliations, a business is more likely to bounce checks and get electronic payments declined. Failed payments can harm supplier and partner relationships, resulting in increased fees and stricter payment terms.

Business accounts do not include the same legal protections as consumer accounts, which means that simple mistakes like bank errors may be correctable, but fraudulent usage is typically not covered by banks. Instead, companies are responsible for identifying and stopping fraudulent use themselves. That kind of policing is not possible without routine checks on the balance of the account as well as investigation into any transactions that do not reconcile properly.  

Monthly Reconciliations
In general, all businesses should do bank reconciliations at least once a month.
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It is convenient to reconcile the books immediately after the end of the month because banks send monthly statements at the conclusion of each month that can be used as a basis for the reconciliation. However, a bank reconciliation can be performed at any time using online month-to-date statements to adapt to different business needs.

Seasonal business or those with responsibilities that fall more heavily during one time of the month (for instance, service companies with time-sensitive client deliverables) may opt to shift their reconciliation process to a less busy time of the month. Gathering the information needed to prepare a bank reconciliation ahead of time or using software to automatically generate information is a shrewd way of dispersing the work to avoid tying up too much time at once.

Daily Reconciliations
More frequent bank reconciliations should be done for higher volume businesses and companies with greater fraud risk. In these instances, daily bank reconciliations are a more appropriate way to ensure that cash is moving in and out of the business appropriately. Conducting bank reconciliations each day allows a business to identify unauthorized ACH debits and block them before the money is transferred to mitigate fraud loss. Again, month-to-date online bank statements will assist with this non-standard approach.

While daily bank reconciliations can pose a substantial challenge due to the high volume of in-transit deposits and withdrawals in most business accounts at any given time, they are an important way to safeguard the financial health of the company.

Low Activity Accounts
If there are accounts that do not need to be reconciled at least once a month due to low activity volume, they should be closed, and any recurring deposits or debits should be transferred to more active accounts. Consolidating accounts in this manner helps to streamline the overall bank reconciliation process.

Follow our ongoing bank reconciliation series to find out other important information related to bank reconciliation requirements, common problems, and a step-by-step tutorial.
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Do you need help with your bank reconciliations?  Contact us today!