Guides and Articles
Bank Reconciliation: Comparing Bank Activity With the Books
Understand what bank reconciliation compares, why recorded entries and bank activity can differ, and how unresolved items relate to completed reports.
Bank reconciliation compares activity in the bank record with the corresponding financial record maintained for the business. It is a checking and explanation task. It differs from entering transactions for the first time or simply downloading a bank statement.
Two Records With Different Starting Points
A bank statement records activity through the account. The business's books record its financial activity and associated documents. They are related records, but their format, descriptions and timing can differ.
For example, a business may record an invoice and later receive its payment through the bank. Another item may appear in the bank record before its supporting document reaches the bookkeeper. These situations create questions about the relationship between records, rather than establishing an error by themselves.
Matching and Explaining Differences
The BLS description of bookkeeping work includes reconciliation and reporting differences in records. Reconciliation makes those differences identifiable for review.
A useful result distinguishes items that have been connected with their corresponding record from items still requiring explanation. A list of unanswered questions is different from a conclusion that the period is complete. That distinction helps the business respond to the right records rather than resend an entire document archive.
The Period and Account Matter
A reconciliation concerns a particular account and period. Where a business has several accounts, one completed reconciliation should not be treated as confirmation that every account has been reviewed. Likewise, a later statement is not a substitute for identifying the period involved in an earlier question.
This is particularly important when work changes hands. The incoming provider needs to understand which periods were completed and where unresolved items remain. The transfer of a software file does not explain that status on its own.
How Reconciliation Connects With Reports
Transaction recording creates entries; reconciliation checks their relationship with the bank record. Management reports and financial statements use financial information for other purposes.
Ask how unresolved reconciliation questions are reflected in the reporting conversation. A report's date, period and underlying record status are more useful than a general assurance that the books have been looked at.
Common Questions
Is a bank download a completed reconciliation?
No. A download provides information; reconciliation compares it with the relevant business record.
Does a difference always mean a mistake?
A difference is an item to understand. The records, period and supporting information need to be considered together.
Can this be part of recurring bookkeeping?
Yes. Discuss the accounts and periods with a bookkeeping provider or accounting firm and distinguish reconciliation from other record work.