Why your bank account shouldn’t party without a chaperone
The importance of consistent bank reconciliation
Let’s talk about something that sounds fancy but is super simple and incredibly important - bank reconciliation. Don’t let the term scare you off. It’s basically just matching your bank statements with your own records (receipts and invoices).
Think of it as giving your money a regular check-up … no doctor's appointment required!
This blog will show you why it should be a monthly habit, and how to do it.
Before we dive into it, here is a quick summary of terms:
Reconciliation: The process of comparing your records with bank statements to ensure they match.
Ledger: A record where all your financial transactions are listed. Your ledger can be what you’ve entered into Quickbooks Online (this is what we use), a spreadsheet or a hand written book (we do not recommend this) - whatever way you keep track of your transactions.
Statement: A document from the bank summarizing your account's transactions and balance.
What is a bank reconciliation?
Bank reconciliation is the process of comparing the transactions recorded in your ledger with the transactions listed on your statement to ensure everything matches up.
The same way you may balance your personal chequebook - you need to balance your business!
The goal is to make sure that every deposit, withdrawal and fee in your records is also shown in your statement. If there are differences, such as missing transactions or errors, you’ll need to figure out why and fix them.
Why it’s important
Regular reconciliation catches errors early, preventing big problems. It helps ensure your financial records are accurate.
It also spots suspicious activity, like unauthorized transactions.
Plus, it gives you a clear view of your finances, helping you make better decisions and plan for the future. Not to mention making sure you plan for taxes accordingly.
How to do It
To get started with bank reconciliation you need to gather your records, including your bank statements, ledger and any other documents that may not be recorded in your ledger yet (receipts).
Compare each transaction on your bank statement with your records. Check off each one as you confirm it. If you find a mistake, like missing receipts or typos, figure them out and fix them.
After resolving discrepancies, update your records to show the correct info.
By the end, everything should reconcile to zero. That means there are no outstanding transactions on your bank statement or on your ledger so everything is accounted for.
BONUS tip: if you'd rather not dive into the numbers yourself, consider hiring someone who enjoys untangling financial mysteries - because let's be real, not everyone finds joy in balancing spreadsheets!
Tips for easy reconciliation
Use software:
Bookkeeping software like QuickBooks Online can make reconciliation easier by automatically importing transactions from your accounts, matching to receipts and flagging discrepancies. Not to mention you can add rules so certain transactions are automatically categorized.
Stay organized:
Keep your receipts and invoices organized. This makes it easier to track down any discrepancies. If using bookkeeping software, attach receipts to your expenses.
Be consistent:
Reconcile your accounts at the same time each month (we recommend doing it when your bank statement is available). Consistency helps you stay on top of things. Trying to remember what that expense was for 4 months later is not a fun game (trust me).
Review regularly:
Don’t wait until the end of the month. Regularly review your accounts to catch errors early, making reconciliation smoother.
Use a checklist:
Have a reconciliation checklist to ensure you don’t miss any steps. This can help streamline the process and ensure accuracy. Click here for our free checklist to get you started.
Categorize transactions correctly:
Make sure all transactions are properly categorized in your ledger. Misclassified transactions can lead to discrepancies that are hard to track down.
Follow up on discrepancies immediately:
If you find an error or discrepancy, investigate it as soon as possible. Delays can make it harder to resolve issues because it will become harder to remember what happened that month.
Separate business and personal accounts:
We’ve said this in previous blogs, but it’s worth repeating. Always keep your business and personal finances separate to avoid confusion and ensure accurate reconciliation.
If you want more information on reconciling check out Quickbooks Canada Youtube Channel for easy to follow videos.
The bank balance ballet
Mastering your bank reconciliation is essential for any business owner looking to maintain financial health and accuracy.
It might seem like a chore, but its benefits are undeniable.
Finally, make this a monthly habit to keep your records accurate and maintain your financial sanity.
Less financial drama equals more time to perfect your dance moves!
