Reconciling your accounts might not seem as urgent as hiring a new engineer or responding to a customer ticket—but it can be incredibly impactful. Although it’s not exactly an enjoyable process, when you do reconciliations on a regular basis you’re giving yourself the peace of mind that comes with knowing exactly where your money is going. In the process, you’re protecting yourself from all kinds of liabilities, like overdrawing cash or unknowingly being defrauded by customers and partners.

First off, what’s a bank reconciliation?

When you reconcile your bank statement or bank records, you compare it with your bookkeeping records for the same period—pinpointing every discrepancy along the way. As you go, you make a record of those discrepancies to ensure no money went missing from your business.

Bank reconciliations aren’t limited to just your bank accounts. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled.

Why should I reconcile my accounts? 

1. See your accurate financial story

Your books should reflect reality. Misalignment between your bank statements and bookkeeping can lead to spending beyond your means or missing investment opportunities. It also helps catch bank service fees or interest income, ensuring accurate cash balances.

2. Manage your cash flow

Managing cash flow is vital for any business. Reconciling bank statements shows the timing of money entering and leaving your business, which helps you plan what you can spend on.

3. Detect fraud

Reconciliation won’t prevent fraud, but it will help you catch it. For instance, if a vendor tampers with a check, increasing the amount before cashing it, you’ll notice the discrepancy during reconciliation. Similarly, if a business partner withdraws more than recorded, reconciliation will bring it to light. 

4. Spot bank errors

Although rare, banks can make mistakes, too. If you find an unexplained discrepancy, it might be time to contact your bank.

5. Monitor your accounts receivable 

With accrual accounting, you might record a payment when a client promises to mail a check. During reconciliation, you may find the check never actually arrived, preventing your books from showing accurate receivables.

Reconciliations ensure your accounts receivable remain under control. Persistent discrepancies might be a symptom of deeper issues in the business. 

6. Peace of mind 

Perhaps the most significant benefit of regular bank reconciliation is the peace of mind it offers. Knowing that your financial records are accurate and up-to-date provides confidence in your financial health and decision-making.  This allows you to focus on other aspects of your business or personal life, secure in the knowledge that your finances are in good order.

An example of why reconciliation matters 

Let’s say you run an e-commerce brand called ABC. 

In its books, ABC Enterprises showed an ending balance of $150,000. However, its bank statement showed a closing balance of $180,000. 

After reconciling the books, ABC Enterprises found that a $10,000 check to a supplier had not yet cleared the bank and a $20,000 payment from a customer had not been recorded in the company's books. As a result, ABC Enterprises updated its records to reflect the outstanding check and the unrecorded deposit.

How to reconcile statements 

Start by grabbing your bank statement and your cash book or ledger for the same period. Check the ending balances on both. 

Look for any transactions on the bank statement that aren't in your cash book, like bank fees or interest. Also, find any transactions in your cash book that aren't on the bank statement, such as outstanding checks or deposits that haven’t cleared yet. Write down these differences.

Next, it's time to adjust your records. Add any outstanding deposits and subtract any outstanding checks from your bank statement balance. Do the same with your cash book: add any interest earned and subtract any bank fees. 

After these tweaks, your balances should match. Finally, record the reconciliation in your books, noting the adjustments you made. 

Doing this regularly keeps your financial records accurate and gives you a clear picture of your finances.

How often to reconcile statements 

How often you should reconcile your statements depends on your transaction volume. 

High-transaction businesses like busy e-commerce stores may reconcile daily or weekly, while smaller businesses—one that has days when there are no new transactions at all—might do so monthly.

The key is to set a regular cadence and be consistent with it. The more frequently you reconcile your bank statements, the easier it is each time.

Need help? 

As a founder, you can’t afford to miss reconciliations. If you’re stretched too thin to handle them on your own and want an industry-leading accounting expert in your corner to reconcile your accounts and talk you through how to optimize your finances—get started with FlowFi today.