Blog

Essential Steps for Effective Bank Reconciliation

Bank reconciliation is a crucial bookkeeping task that ensures your accounting records align with your bank statements. Reconciling your accounts regularly helps identify errors, detect fraud, and maintain accurate financial records. This post outlines the steps involved in performing a bank reconciliation manually, with references to how this process works in QuickBooks Online (QBO), QuickBooks Desktop, and Xero.

What Is a Bank Reconciliation?

Bank reconciliation is the process of comparing your accounting records with your bank statement to ensure that all transactions are accurately recorded and reflected in both places. Discrepancies are investigated and adjusted to ensure the records are in alignment.

Key objectives:

  • Confirm all cash transactions are recorded
  • Identify bank errors or missed entries
  • Detect unauthorized or duplicate transactions

Step-by-Step: Manual Bank Reconciliation

  1. Obtain the Bank Statement
    • Download the most recent bank statement (monthly or more frequently).
  2. Access Your General Ledger
    • Review the cash account or bank ledger in your accounting system.
  3. Match Deposits
    • Verify each deposit on the bank statement against the corresponding deposits in the books. Record any missing deposits or investigate discrepancies.
  4. Match Withdrawals
    • Review payments, withdrawals, and electronic transactions. Ensure that each item is accurately recorded in your books.
  5. Identify Outstanding Transactions
    • Note any cheques issued but not yet cleared, or deposits in transit. These are timing differences and should be reconciled in future periods.
  6. Adjust for Bank Charges or Interest
    • Record any service charges, NSF fees, or interest income that appear on the statement but are not yet in your records.
  7. Resolve Discrepancies
    • Investigate any unexplained differences. These could be data entry errors, duplicate entries, or unauthorized transactions.
  8. Finalize the Reconciliation
    • Once all differences are accounted for, confirm the adjusted book balance matches the bank balance. Prepare a reconciliation report for documentation.

Reconciliation in QuickBooks Online (QBO)

Steps in QBO:

  1. Go to Banking > Reconcile.
  2. Choose the bank account and enter the statement ending balance and statement ending date.
  3. Match transactions from your bank statement to what’s in QBO.
  4. Check off matched transactions; QBO displays the difference between the statement balance and the cleared balance.
  5. Resolve discrepancies, then click Finish Now once the difference is $0.
  6. Save or print the reconciliation report.

Tip: Ensure all bank feeds are current and categorized before starting.

Reconciliation in QuickBooks Desktop

Steps in Desktop:

  1. Go to Banking > Reconcile.
  2. Choose the account, input the ending balance and statement date, and optionally any service charges or interest.
  3. On the Reconcile window, tick off matched transactions.
  4. Investigate any uncleared transactions or mismatches.
  5. When the difference is zero, click Reconcile Now.
  6. Save or print the reconciliation report.

Tip: Use the Previous Reconciliation Report to review prior adjustments or uncleared items.

Reconciliation in Xero

Steps in Xero:

  1. Navigate to Accounting > Bank Accounts, then select Reconcile on the appropriate account.
  2. Xero automatically suggests matches for imported bank feed transactions.
  3. Confirm matches or manually match them using the Find & Match tool.
  4. For unmatched transactions, create manual entries or adjustments.
  5. Use the Reconciliation Report to confirm balances and identify outstanding items.

Tip: Use cash coding to quickly reconcile high-volume low-value transactions.

Best Practices

  • Reconcile monthly: At a minimum, complete reconciliations when you receive the bank statement.
  • Use automation carefully: Bank feeds are helpful but not infallible. Always review transactions before approving.
  • Document adjustments: Maintain clear notes on all manual adjustments for audit purposes.
  • Review uncleared items: Routinely follow up on cheques or payments that remain outstanding.

Final Thoughts

A properly completed bank reconciliation assures that your financial records are accurate and up to date. Whether you’re using QuickBooks Online, QuickBooks Desktop, or Xero, the process is largely the same—compare, confirm, and correct.

Need help getting started with bank reconciliations or automating your bookkeeping? Contact us to discuss how we can support your business.

Links

Tags: , ,

Dean Paley

A graduate of Simon Fraser University, Dean started and operated an independent painting company while perusing a degree at SFU. After graduating from Simon Fraser, Dean entered the Certified General Accountants Program of Professional studies where he obtained the professional CGA designation. After a number of successful years as the head of finance for the Canadian operations in a global financial services firm, Dean moved into a marketing role and established and launched a tax, estate and financial planning support department and service to advisors and clients. During this time Dean successfully obtained the Certified Financial Planner (CFP) designation. Dean has been a member of the Canadian Forces Reserve spanning three decades serving in the Royal Westminster Regiment (B.C.), the Military Police and later as a commissioned officer in the Cadet Instructors Cadre in Hamilton Ontario. Dean Paley CGA CFP has been interviewed and quoted in major media such as the National Post, Financial Post, Toronto Star, Canadian Business, Money Sense and Investment Executive. Dean is married to his lovely wife Deborah and has four lovely children.