The “what”

Reconciling your bank is a fancy way of saying you are matching the transactions on your bank statement to the activity in your business. For example, matching the £50 that’s gone into your bank to the invoice you sent out last week.

The “why”

As clever as technology is these days, bookkeeping software is still pretty basic in what it can actually do. Even if you’ve got your bank feed set up automatically it will still only tell you whether the money has come in or out and maybe a reference if one exists. Other than that, it’s very limited. You need to tell your software exactly what that payment was for or where that money has come from.

If you’re not using software or you don’t have your bank feed set up, then you will need to manually reconcile your bank statements with your books. This is to make sure that no activity is missed such as bank fees.

The “how”

Using software with your bank feed set up makes this a fairly pain free operation (I’ll use Xero as the example here but they’re all pretty similar). Look for the button underneath the name of your bank that says ‘reconcile (a number) items’ and click it. On the left hand side is all the information Xero has got from your bank. On the right hand side is where you tell Xero what each item is:

Match – Xero thinks it’s found what the item is. If it’s correct, click OK and move on. If it’s not correct then you’ll need to use one of the other options.

Create – Here is where you can tell Xero what the transaction is for if it’s not already in Xero. Type in the name of the contact, select which area of your business it relates to and put in a description. If you want to add more details, such as adding a pdf, click the ‘add details button’.

Transfer – This is for when you’ve moved money between your bank accounts. Simply select the account the money has moved to or from.

If you don’t use software or you haven’t got your bank feed set up, you’ll need to get hold of your bank statements. The goal here is to make sure the amount on your bank statement matches the amount you have in the bank account in your books. Go through each line on your statement one by one and check the matching transaction is in your books. If it isn’t (such as bank fees) you’ll need to add it in.

Now you know the what, the why and the how, it’s time to do your own. Go forth and reconcile!