Definition:
Bank reconciliation is the process of comparing your business’s internal records (like your accounting software or cash ledger) to your bank statement, to make sure everything matches. It helps you spot any differences — like missed transactions, fees, or errors — so you can correct them and keep your books accurate.
Why a Bank Reconciliation Matters?
Bank reconciliation is important because it helps you:
- Ensure accuracy – You can confirm that what’s recorded in your system reflects what’s actually happening in your bank account.
- Catch mistakes early – It helps you find and fix any errors, like double payments or missed deposits.
- Prevent fraud – Regular checks can reveal unauthorized transactions or suspicious activity.
- Improve financial decisions – With a clear picture of your cash position, you can manage your spending and plan better.
- Stay compliant – Well-kept financial records are important for audits and reporting.
How the Process Works
- Gather the documents – You need the bank statement and your internal records for the same time period.
- Compare balances – Look at the closing balance on the bank statement and compare it to your records.
- Check for differences – Note any items that don’t match, like:
- Payments you’ve recorded but that haven’t cleared yet
- Deposits that haven’t shown up in the bank yet
- Bank charges or interest that you didn’t record
- Make adjustments – Update your books with any valid charges or errors you’ve found.
- Confirm everything balances – Once both records match, you’ve successfully completed the reconciliation.
Common Challenges
- Timing issues – Some transactions take time to clear, which can cause short-term mismatches.
- Missing entries – You might forget to record a fee or deposit, especially if you rely on manual processes.
- Human error – Mistakes in data entry can throw off the reconciliation and take time to track down.
How TidyFlow Can Help
TidyFlow helps streamline the bank reconciliation process by:
- Assigning tasks for each step of the reconciliation so nothing gets missed
- Keeping all supporting documents and notes in one place
- Helping teams stick to monthly or weekly reconciliation deadlines
- Making the process easier to track, especially across multiple clients or team members
Conclusion
Bank reconciliation might seem like a small part of your accounting workflow, but it plays a big role in maintaining financial accuracy and trust. By regularly reconciling your accounts, you reduce the risk of error and improve confidence in your numbers. With the right tools and a clear process in place, it becomes a simple but powerful habit that supports better financial management.