What do you Need to Reconcile a Bank Statement?

At its most basic level, a bank reconciliation only requires two items – what is being reconciled and what it is being reconciled against.
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Since bank reconciliations are account-specific, this requires obtaining current records of cash totals that should be present for a single account only. 

A sub-ledger and bank statement typically serve in this capacity, allowing businesses to reconcile actual account amounts against presumed cash totals. The sub-ledger is the most effective financial record to consult for a bank reconciliation because it is more specific than the general ledger, while the bank statement serves as a control total.

Whether these documents are physically obtained, or they are electronically imported and cross-referenced, they are the only mandatory requirements for a bank reconciliation.

Traditional Method

For as long as bank accounts have existed, bank reconciliations have been performed. Even balancing a checkbook is a form of personal bank reconciliation. However, bank reconciliations for businesses are a more complex version of the same concept.  

Traditionally, bank reconciliations require keeping a list of all transactions that resulted in cash moving out of the account as well as transactions that brought cash into the account, including checks and electronic payments. Those inflow and outflows of cash are checked against bank records manually to ensure proper recordkeeping.  

Then, bank fees, such as overdraft charges and NSF check fees, are accounted for to resolve discrepancies between the two balances. Any remaining differences are investigated to determine whether cash is in-transit, an error has occurred, or fraud is present. Exceptions are noted to aid in future reconciliations and forward-looking decisions are made regarding recurrent customer or supplier payment issues.

Using this traditional method of bank reconciliation can be time consuming, especially for high-volume accounts. The likelihood of encountering problems during the reconciliation process is high and uncovering the source of those issues to resolve them takes even more time.

To achieve greater efficiency, specialized software has been developed to remove the busy-work from the bank reconciliation process.

Modern Method

These days most accounting systems have at least some measure of electronic reconciliation capabilities. Wave, for instance, links to bank accounts to download transactions, consolidating financial information into one place to make reconciliations easier. Many software platforms have features that can categorize and match bank transactions automatically. QuickBooks can even reconcile accounts entirely for small business owners.

Automation allows less financially savvy employees to perform bank reconciliations in less time with fewer errors. For some small business this can help eliminate the need for a bookkeeper or accountant. In other cases, these automated reconciliation capabilities make it possible for small businesses to perform bank reconciliations more regularly.

These digital aids are the new norm for small businesses when trying to reconcile accounts. However, they do not come without their own concerns. Unlike reconciling by hand, where human error is the most common peril, modern reconciliation relies on far less tangible perfection, like uninterrupted digital account linking. Account synching issues and inter-platform reporting errors can result in data loss that will derail bank reconciliation attempts. Therefore, regular monitoring of data completeness is still needed to ensure accuracy.

With the knowledge of what a bank reconciliation is and how often one should be performed, the next steps are learning how to do one and understanding what kinds of problems can arise. Follow our ongoing blog series for comprehensive information of how the bank reconciliation process can benefit your business and how to conduct one like a financial expert. For more customized advice, hire an accounting partner to assist your business with bank reconciliations and other recurring financial needs.
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Do you need help with your bank reconciliations?  Contact us today!