Bank reconciliation is the process of marking off what has come into and gone out of your business bank account. Traditional bookkeeping involves manually marking these items off on paper bank statements.
The process of bank reconciliation has two main benefits; you can catch receipts that have not been entered as well as finding any errors in what is already there. If this process is done regularly, it can reduce the amount of work at the end of the financial year.
Cloud and many pieces of desktop software allow for a direct import of a bank feed. Some banks offer a direct feed into your software, others you can use a proxy called Yodlee.
However, what if you can’t get a bank feed? If you have online banking, you can export your monthly/weekly transactions. You can choose what format that you would like those transactions. Most of them you can import directly into your software, others such as *.csv may need to be modified first.
Once you have a bank feed, there are many ways that you can automate the process of reconciliation. The software usually gives you three options for each bank feed item, search and match, create and discuss.
If you already use accounting software, you will be familiar with the basics:
The first option, the matching process. The software finds the best match to the bank feed item and presents it to you to mark off. Please, check to make sure that is the correct item before matching it off as you may have to go through everything again later to reverse it and find the right one.
Once you have gone through all of the apparent matches, there will be some left over. Use the search function to find any items that the software missed. These items may not have been discovered because the amounts were out by a couple of pennies or 2 bills paid in one go.
The second option is the create item. If you haven’t entered a purchase or sales item for something that you have found in the bank feed, you can create a spend money item for it at this point.
After searching through your receipts and your best recollection, there may still be items that you don’t remember spending. If you are working with a bookkeeper or an accountant, then you can use the discuss tab to make a note. They will be able to see what you have written when they next log in and be able to offer you help to resolve it.
That isn’t the end of it.
The most useful automation tool is the bank rule feature. This acts like an auto-match when you view your bank feed. It will recognise items of your choice in the description field and create a new spend item for you. For example, if you go to the same coffee shop whenever you buy lunch. You would set up a rule to recognise the coffee shop and put that amount against subsistence. Then when you do your reconciliation the bank rule would be highlighted, click ok to confirm, and it will create the item and reconcile it at the same time.
To use this feature, I recommend using the help section of your software.
There is another feature that proves to be useful, cash coding. This section allows multiple bank lines to be created and reconciled at the same time.
Other features that may prove useful:
- Split payments
- Minor adjustments
These are features that I use to improve my speed and accuracy with bank feeds. Your software may have different ones or more. As bank reconciliation is such a big part of bookkeeping it is worth spending time finding out what your software has to offer.
Part 3 will go through fixed assets and journal entries.
- On October 1, 2018