Without correct bank reconciliation, it can’t provide the incredible insights and power that it does. These aim to provide an up-to-the-minute, at-a-glance view of your business finances so managers are empowered to act immediately. If you don’t undertake reconciliation regularly, your accounting software won’t display how much money your business has – and how much you can spend or expect to receive.īut more than this, if your business finances ever need to be examined – by your accountant at year-end, for example, or even by HMRC – regular and accurate bank reconciliation is vital.Īccounting software is increasingly sophisticated, and often includes reporting and dashboard features. Reconciliation is a vital business practice that helps you to be clear on what’s happening with your cash flow. Increasingly, artificial intelligence functionality is enhancing this so the accounting software can recognise new or irregular transactions, and reconcile them automatically without user input (although it’s always wise to check).ĭownload your free copy of How to boss your small business banking for advice to help you stay on top of your finances Why is bank reconciliation important? If you regularly receive a payment each month with the same reference, for example, you can configure the software to reconcile it immediately. Many do, but not all.īuilding on top of bank feed functionality, some accounting software even includes features to automatically reconcile transactions. This will depend on whether your bank supports Open Banking. This can speed up the process of reconciliation to the extent that it becomes something you spend a few minutes taking care of each day, thereby ensuring your accounting is always up to date. However, the gold standard for ease of use is connecting the bank feed directly to your accounting software, so the transactions are imported automatically and near-instantly in the background. This means reconciliation becomes a task where you match entries in one on-screen table against another. In the first instance, it’s sometimes possible to download the statement from your bank and import it into your accounting software. This can mean people simply put it off – which means their accounting isn’t providing the insight they need. It’s clear how labour-intensive this task is. You might even have your online banking open in a browser window, alongside your accounting software in order to match and reconcile transactions. Perhaps the oldest method is to manually reconcile against the printed bank statement you receive or a PDF version of this on your computer. The three methods of bank reconciliationĭepending on the software you use, and which bank you’re signed up with, there are three options for reconciliation. Of course, if the invoice shows as not being reconciled – even after you’ve reconciled everything properly – this indicates the payment should be chased, assuming the agreed payment terms have expired. You may avoid making purchases, for instance, because you believe your bank balance is lower than it really is. Until the received payment is reconciled, a false impression is created. If you create an invoice for a large customer order in your accounting software, for example, this will need to be reconciled against the payment when it’s received. If it doesn’t, that’s a clue that something has gone wrong and needs to be fixed. Incoming and outgoing payments are considered in reconciliation, as are charges such as bank fees that might not appear in your accounting software (but will have to be added).Įverything should always match up. If the two balances match, you’ve successfully reconciled. Download your free copy of How to boss your small business banking for advice to help you stay on top of your finances What is bank reconciliation?īank reconciliation is a process where you match what your bank says is the case with your finances against what your accounting software’s ledger says.
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