Beautiful business

 Free trial
 Login

 Features & tools 

 
 Why Xero  
 
 Pricing
 
 Find an advisor
 
 Resources  
 
 Partners  
 
 Business recovery

How to do bank reconciliation

Small Business Guides

3 min read

Bank reconciliation is part of life as a small business owner. It keeps your bookkeeping
accurate and can help lower your tax, alert you to fraud, and allow you to track costs. So
how do you do it?

 

 

 

 

 





Bank reconciliation steps

Bank reconciliation happens when you compare your record of sales and expenses against the
record your bank has. It’s how you verify your business accounting numbers.

1. Get bank records

You need a list of transactions from the bank. You could
get that from a statement, from online banking, or by
having the bank send data straight to your accounting
 software. If you run a current account and a credit card
account, you’ll need both statements.
2. Get business records
Open your ledger of income and outgoings. This might be
in a logbook, on a spreadsheet, or in an accounting
software package. Some accounting software will pull in
bills and receipts with the help of data capture tools and
extract the data automatically.
3. Find your starting point
Find the last time the balance on your business books was
the same as the balance in your bank account. Start the
reconciliation from there.
4. Run through bank deposits
Make sure each deposit appears as income in your
accounts. If something is missing, enter it. You’ll need to
figure out if it was a sale, interest, a refund, or something
else.
5. Check the income on your books
Each entry should match a deposit on your bank
statement. If something is missing, find out why. A
customer payment might have bounced, for example.
6. Run through bank withdrawals
All bank withdrawals should be recorded in your books.
This includes things like bank fees, which you might not
have accounted for yet.
7. Check the expenses on your books
Each entry should match a withdrawal on your bank
statement. If not, find out why. One of your payments
may not have cleared yet, or maybe you paid using cash
or a different account.
8. End balance
After you’ve checked all the deposits and withdrawals,
your business bank balance should match the totals in
your business accounts. This will be the starting point for
your next reconciliation.

How to do bank reconciliation the easy way

Bank reconciliation can be trying work. Switching between documents and comparing numbers
isn’t everyone’s cup of tea. If you can’t spare the time or stand the monotony, there’s an
alternative. Software will speed things up hugely.

How to use bank reconciliation software

Most banks can send transaction data directly to accounting software, like Xero, through a secure
online connection. When you’re ready to do reconciliation, the software pulls up each bank
transaction in turn and either:

 suggests a match with a corresponding entry in your

accounts, or
 asks what the transaction was for and enters the info into
your accounts.

With the right software, you can do bank reconciliation on your phone.

Bank reconciliation problems

No matter how you do bank reconciliation, you’ll come across mystery transactions from time to
time. There will be amounts that appear in one set of records but not the other. Don’t let it panic
you. This is why you’re doing bank rec, and there’s often a straightforward explanation.

Business books show something that’s not on your bank statement?

If a transaction isn’t showing on your bank statement, it’s most likely because you got income
that you didn’t bank, or you paid for something out of a different account or with cash. Get to the
bottom of it and make the necessary notes.

Bank statement shows something that’s not in your business books?

If a transaction isn’t showing in your business books, it could be from a keystroke error when
you entered a transaction. Or it could be a transaction that you forgot to enter. Make the required
corrections or updates.

Fixing bank reconciliation problems

It can take a long time to figure out mismatches. You’ll need to go through invoices, receipts,
emails and diary entries to get there. Doing bank reconciliation weekly – or even daily – can help
you avoid these frustrating searches because you’ll have a clearer, more recent memory of the
transactions you’re reviewing.

Make bank rec less of an ordeal

However you do bank rec, do it often. The longer you go without doing it, the longer it will take
to catch up. It won’t just be that you have more transactions to do, it will take longer per
transaction because you’ll have a harder time recalling the details.

Schedule the time to do it every week or even every day. And set up a system that makes it quick
and easy to grab the records you need. Check out Xero’s bank reconciliation software.

Xero is beautiful accounting software

Use Xero to manage invoicing, bank reconciliation, bookkeeping & more

Try Xero for free

Learn more
Xero is easy-to-use online accounting software
 
READ THE GUIDE

What is bank reconciliation?

3 mins read

 
READ THE GUIDE
Bookkeeping to run your business

6 mins read

 
READ THE GUIDE

Why cloud accounting is good for business

4 mins read

 
READ THE GUIDE

17 essentials to do before starting a business

4 mins read