How to Reconcile a Bank Statement
Bank reconciliation is the process of comparing and matching your internal financial records against the bank statements. This is done to ensure that all financial transactions in your bank account are reviewed and checked for accuracy. Doing so will help catch and resolve discrepancies that might be caused by accounting oversights, bank errors and fraud.
It will also help you build good bank account conduct, which boosts your creditworthiness and helps you get fast approval on loan applications.
You don’t need to be well-versed in accounting and auditing to do a bank reconciliation. To reconcile your own bank statements, follow these steps:
1. Keep a record of all your financial transactions.
Make a record of all the transactions on your bank account, including cash withdrawals, deposits and check and credit card payments. Keep all the receipts, invoices, deposit statements and other financial papers.
If you’re not into manually recording your bank account transactions in a ledger, you can automate the process using apps, like:
- Weple Money
2. Prepare your bank statement.
Get a copy of your monthly bank statement from the bank or via online/mobile banking. Some banks also send a monthly copy of the statement through email.
Start the reconciliation as soon as you get the bank statement in order to spot, correct and resolve any discrepancies early.
3. Verify the cash balance, deposits, withdrawals and miscellaneous charges.
Begin by examining the account summary in the bank statement, then going over the deposits, withdrawals and miscellaneous charges.
- Do the figures in the summary information match with your records? The cash balance on the statement should match with the beginning balance on your register. If it doesn't, go back to the last time they match and spot where the discrepancy started.
- Are all the deposits shown on the bank statement also recorded in your ledger? If you have a deposit that isn’t reflected in the statement, it means that it never got to the bank or it was received by the bank after the cut-off date of the reconciliation bank statement. If you forget to record a deposit, enter it in your register and add it to your balance.
- Do you have a record of all the withdrawals reflected in the bank statement? If not, record it at once, including the bank charges if there are any, then deduct the amount from your balance. If a withdrawal is not reflected in your statement, a check might have not been cashed or it was cashed after the statement date.
- Are all the payments and miscellaneous charges – bills, card payments, bounced checks, ATM fees, and overdraft charges – legitimate? If not, call your bank immediately and ask for an explanation or contest to have the charge removed.
4. Review and resolve any discrepancy.
Once you’ve gone through your bank statement and find discrepancies, investigate how they occur. Most discrepancies are usually basic human errors, like miscalculation or failure to record a transaction. In the case of bank errors, however, report them immediately to the bank. The banks usually disavow errors that are reported 60 days after receiving the statement.
Report and stop any fraudulent activities. If the unauthorised transactions happened after your debit card has been stolen or suspiciously skimmed, go to your bank immediately to have your card replaced. While waiting for your new card, be sure that your bank puts your account on freeze so that no further charges will accrue.
If you've spotted fraudulent electronic transactions, close your account completely and reopen a new one. Switch everything that was automatically drafted from that hacked account, including monthly bills, membership fees, and online subscriptions. It's also advisable to file a fraud report with your local police department. This will prove to the bank that you did not make the phony transactions.
5. Keep reconciling documents on file.
After reconciling your bank statement, attached or staple all the supporting documents with the statement and keep them on file for future reference. You can also list all the reconciling items on the back of the bank statement.
Financial experts advise keeping your monthly bank statements for one year or storing them permanently or until project completion if the transaction involves taxes or business operations.
Reconciling your bank statement gives you the assurance that you and your bank are on the same page when it comes to your finances. Make bank reconciliation a habit and you’ll be well on your way to building good account conduct and credit score.
Wanna know how much you can loan and how much you can afford for repayments based on your current financial situation? Use our Loan Calculators. To explore your options and determine which is best suited to your needs, talk to one of our Loan Specialists on 1300 722 210.