The process of matching and verifying that a company’s accounting records (cash ledger) align with the bank’s records (bank statements), identifying any differences or errors.
What is Bank Reconciliation?
Bank reconciliation is the process of verifying that a company’s financial records (such as its bookkeeping system or accounting software) match the transactions listed in its bank statement for a given period. This involves comparing deposits, withdrawals, fees, and balances, and identifying any discrepancies such as unrecorded payments, bank errors, or timing differences.
Reconciliations are typically done monthly and play a critical role in maintaining accurate financial reporting. For example, let’s say on June 30 your Clemta dashboard shows $10,000 in the checking account, but the bank statement shows $9,500. Upon reconciliation, you find there’s a $500 check you issued on June 29 that the vendor hasn’t cashed yet – an outstanding check. Once you account for that, the adjusted balances align. You might also discover bank fees or interest that you didn’t record yet, or perhaps a customer’s payment that bounced, etc.
The reconciliation statement effectively lists the bank’s ending balance, then adds/subtracts reconciling items like outstanding checks and deposits in transit, to tie to your book balance. Any discrepancies that aren’t explained by timing should be investigated – they could be bookkeeping errors or even fraud. For non-U.S. business owners not used to U.S. banking, note that checks are still used and can take days to clear, hence the need to track those in reconciliation. U.S. banks also often issue monthly statements online which make reconciliation straightforward. Most accounting software has a reconciliation module where you check off transactions that appear on the statement, and the software calculates if everything matches.
Performing bank recs regularly helps detect issues early – for instance, if a payment you sent hasn’t cleared for a long time, maybe it was lost; or if there’s an unfamiliar withdrawal, you might catch unauthorized transactions. It’s also essential come tax time or financial reporting time, because cash is a sensitive item and auditors (if you ever need an audit) will definitely look at bank reconciliations. In short, bank reconciliation is a housekeeping task: it ensures your cash records are clean and can help spot mistakes or irregularities, giving you confidence that your financial statements are reliable.
