Why is Bank Reconciliation Important?

Differences happen even in well-run businesses because banks and accounting systems do not always record transactions at the same time. Bank reconciliation creates confidence that your cash figure is real—critical for paying suppliers, forecasting, and closing accounts.

What bank reconciliation checks

A reconciliation compares:

• Bank statement balance (what the bank reports)
• Book/ledger balance (what your accounting system reports)

You then identify reconciling items—transactions that explain timing gaps or missing entries.

Common reconciling items

Timing differences (usually normal):

• Outstanding payments: payments recorded in the books but not yet cleared by the bank.
• Deposits in transit: receipts recorded in the books but not yet processed by the bank.
• Card payment settlement delays: sales processed by a card provider may hit the bank later, often net of fees.

Items shown by the bank but not yet in the books:

• Bank charges and fees
• Interest received
• Direct debits / standing orders
• Loan repayments
• Returned payments (failed direct debits, chargebacks)

Errors that require correction:

• Duplicate postings
• Wrong amounts
• Posting to the wrong bank account

Why it matters

Regular reconciliation helps you:

• Maintain a reliable cash balance for decisions
• Detect errors quickly (before month-end becomes painful)
• Spot suspicious or unexpected transactions early
• Improve the quality and speed of your close process
• Support auditability and internal controls

How bank reconciliation works (simple workflow)

1. Import or obtain the bank statement (or bank feed).
2. Match statement lines to ledger entries.
3. Investigate unmatched items.
4. Post adjustments (fees, interest, corrections).
5. Confirm the reconciled book balance matches the bank position after accounting for timing items.
6. Save documentation of the reconciliation.

If you’re reconciling accounts where VAT payments/refunds or Revenue/HMRC payments are involved, consistent reference details and accurate posting make mismatches easier to resolve.

How often should bank reconciliation be done?

Monthly is the minimum for most businesses. Weekly or daily is common when transaction volume is high or cash control is critical.

Are outstanding items a problem?

Not automatically. Timing differences are expected. They become a concern if they stay outstanding too long, which can indicate errors, stale payments, or missing entries.

What’s the biggest benefit of reconciling regularly?

Trustworthy cash reporting. Without reconciliation, your cash balance can drift away from reality and cause bad decisions.

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