How Often Should You Reconcile Your Bank Accounts?

Running a small business or limited company requires dedication, hard work, and business management skills. You must know accounting and bookkeeping procedures before starting a business. Moreover, there should be a strategy to help you have a clear idea of the cash flow in your limited company. For this, bank reconciliation is the procedure. This article will help you have an idea of the procedure, and how often should you reconcile your bank accounts.

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How Often Should You Reconcile Your Bank Accounts?

Bank reconciliation involves the comparison of the bank statement of a company with its account office records. You can do bank reconciliation once in a month period; however, this depends on the volume of transactions of a business. In case you have a high volume of transactions, you can do bank reconciliation more frequently. The comparison of bank reconciliation is done in the following steps:

1. Get the bank statement from the bank at the end of the accounting period.
2. Get the company account office records along with all the documented proofs and receipts of transactions.
3. Adjust the bank statement balance.
4. Adjust the company account balance.
5. The balances at the end of both records should be the same.

What is the Method of Bank Reconciliation?

Bank reconciliation can be done by various methods. The three methods of bank reconciliation are explained below

• Adjusted balance method

In this method, the entries in both records are compared and reconciled. Accountants check entries that don’t match and try to find the reason for misalignment. The misalignment can occur due to

• In transit deposits
• Unclear checks
• Bank service charges
• Due payments that are not paid yet
• Incorrect entry

The accountants find the reason for misaligned entries and make the required adjustments to align the entries in both records.

• Bank statement method:

In the bank statement method, the accountants align the entries of bank statements with office records. In this method, they adjust the bank statement according to the office accounts register. the adjustments made are

• Remove unclear checks from the bank statement
• Removing bank service charges
• Remove any in-transit deposits that are yet to be cleared
• Add the due payment amount to the bank statement that will be paid to the company.

By adjusting the bank statements, accountants make sure that the balance of both records is the same.

• Balance sheet method:

The bank balance sheet method is basically an amalgamation of the adjusted balance method and bank statement method. In this method, the balance sheet is compared. The entries are compared, and accountants look for any discrepancy in the amount entered. The discrepancy can be in the form of incorrect entry, illegal transactions, bank service charges, outstanding checks, and in-transit deposits. The balances in both records are compared and adjusted to have the same balance at the end.

When to Do a Bank Reconciliation?

How often should you reconcile your bank accounts the question of new businessmen. Bank reconciliation is the best practice for transparent cash flow in your company. It’s crucial to carry out bank reconciliation at least once a month. This is helpful in assessing your monthly expenditure and the revenue generated in a month. The monthly reconciliation helps you catch fraudulent activity and discrepancies in payments and transactions. For larger businesses, frequent bank reconciliations on a weekly basis are preferred.

Conclusion

How often should you reconcile your bank accounts? Bank reconciliation should be done at least once a month is the answer. Bank reconciliation is done by balance sheet adjustments, bank statement comparison, and the adjusted balance method. This procedure helps you to identify fraudulent activity, maintain cash flow in the company, comply with the rules and regulations of HMRC, and accurately retrieve the company accounts ledger. Automated bank reconciliation methods can also be used.

Disclaimer: All the information provided in this article on how often should you reconcile your bank accounts, including all the text and graphics, is general in nature. It does not intend to disregard any professional advice.