Why Is It Important to Reconcile Your Bank Statements? Key Benefits

As a business owner, reconciling your bank statements should be a regular practice. Double checking that incoming and outgoing transactions line up with what your bank account shows helps rule out any financial inconsistencies or instances of fraud.

In this blog post, you’ll learn what it means to reconcile your bank statements, why it’s important, and the best practices you should follow.

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for simple account reconciliation

Why is it Important to Reconcile Your Bank Statements?

Every business owner should regularly reconcile their bank statements to be 100% sure that they accurately reflect incoming and outgoing movements in their account.

This is a process you should perform on a monthly or quarterly basis to make sure there haven’t been any errors or instances of fraud.

When tax season comes around, you want to feel confident that your business numbers are right for accurate filing. This is especially true if you manage your business finances yourself as a small business owner, since it’s down to you to identify any small discrepancies.

Plus, if there is fraudulent activity at play, the sooner you detect it and flag it to the relevant authorities, the easier it will be to resolve the issue and get your money back - that’s why it’s important to reconcile your bank statements.

Benefits of Regular Bank Reconciliation

There are various reasons to regularly reconcile your bank statements, such as the following:

Fraud detection

If you don’t regularly reconcile your bank statements, you won’t know whether you’ve been subject to fraud. Fraudulent activity can result in missing sums of money from your account that should have been deposited, unauthorised transactions, and similar concerning issues.

Accuracy in financial reporting

While you can trust that your bank statements will be accurate, there is a small chance that a mistake slips through, so it’s important to double check that what’s detailed in the statement is reflected in your account.

Look out for any duplications of transactions, incorrect sums of money, or other inconsistencies when examining your statements.

Compliance

When you regularly carry out bank statement reconciliation, you put your business in the best position to comply with any regulatory requirements it may be subject to, as well as any audits you’re required to go through.

Cash flow management

Reconciling your bank accounts regularly will give you the full confidence that you know exactly how much cash is available to you, which (if any) funds are tied up in pending transactions, and whether or not you can afford your upcoming business expenses.

Best Practices for Bank Reconciliation

Bank reconciliation can be a challenging process to navigate if you’re not sure what you’re looking for, which can lead to costly mistakes.

Here are some best practices to follow:

Start with Clean Records

The best place to start with bank reconciliation is with a clean slate. Before reconciling your statements, make sure you’ve updated all of your financial records with every transaction accounted for.

Choose the Right Process for You

There are two ways you can reconcile your bank statements as a business owner. Both methods have upsides and downsides, so it’s important to choose an approach you can stick to regularly.

With documentation review, you would go through transaction by transaction to make sure there are no discrepancies. For example, if you’ve paid for a hotel using your business credit card, you would make sure that’s reflected in your bank statement.

The other method, analytics review, requires you to project what your expenses and income should be based on previous years or fiscal quarters, which allows you to pick up on any likely discrepancies.

Cultivate a Regular Habit

Reconciliation is an ongoing process, like a dental check-up, so it’s important that you stick to a regular habit. For many business owners, reconciliation is a monthly or quarterly process.

There are some cases in which it’s prudent to carry out bank reconciliations daily, such as if you run a high-volume business.

Connect to Accounting Software

When you connect to accounting software, it’s much easier to catch errors as they often include automatic reconciliation features which can save you time and streamline the process.

Using accounting software also allows you to standardize your data management practices in your business so if you ever need to outsource the process, it will be simple and intuitive.

Common Mistakes to Avoid When Reconciling Your Bank Statements

Unless you’re well-versed in business finances and the reconciliation process, you should take special care to avoid making the following mistakes:

Recording Errors

It’s possible that human error is responsible for discrepancies between your records and what the bank statement shows.

Missing Transactions

Regularly review your bank statements to make sure every transaction is accounted for, especially when it comes to bank fees, automatic debits, and small deposits which are easy to overlook.

Duplicate Entries

Duplicate entries, the result of entering a transaction more than once in your books, can create confusion and throw off your bookkeeping.

Timing Issues

Some payment types including checks and various deposits might take longer to clear the bank, so bear that in mind as you reconcile your books.

Fees and Interest

Bank fees, service charges, and interest income can throw you off and lead to mismatched balances if you don’t notice and account for them.

Connect QuickBooks and Wise for Easy Account Reconciliation

When you want to feel assured that your business finances are accurate, it pays to connect QuickBooks with a Wise Business account.

With a Wise Business account, you can enjoy seamless account reconciliation with QuickBooks, plus:

• No monthly fees
• International payments at the mid-market rate
• Easy batch payments
• QuickBooks bill payment tracking
• Multiple currency management all in one place
• Receive payments like a local with major currency account details
• Hold over 40 currencies

You can also connect Wise to other accounting software, such as Wave, or Xero. Wise Business is here to make life easier, whatever currency your business operates in.

Open a Wise Business account online