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What is Bank Reconciliation and Why is it Important?

Posted by Kashoo Team on March 25, 2014 at 1:35 PM

Did you ever play memory or any matching game as a kid? If so, you can reconcile your bank statements, more or less.

Reconciling a bank or credit card statement simply means comparing your accounting records—accounts payable and accounts receivable—and matching them up to the corresponding transaction as listed on your bank statement. Simply put: what's in your accounting system versus what's in the bank. That said, there’s a little bit more to dive into, so let’s take a closer and answer the “What is bank reconciliation?” question...

Why is Reconciling Bank and Credit Card Statements Important?

From a high level, it is always a good practice and good internal control to periodically (monthly) compare what is in your accounting records to what is actually in the bank. If you don't have accurate information about the amount of money in your account you cannot make accurate financial choices.

Diving deeper, you want to make sure that you’re being charged the correct amount on things you pay for. Usually you can trust your suppliers and creditors to charge appropriately, but everyone can make a mistake. So by reconciling your bank statements, you’re making sure that you’re not overpaying for something because of a clerical error.

You also want to ensure that all the transactions are in your ledger. It’s easy to forget to enter an expense or a payment when you’re in a rush or if you’ve misplaced a receipt, so cross-checking against the account statement can be a good safety net for your own books. Doing so will ensure that you are getting paid—and paying people back—promptly. This, in turn, will help you keep other parts of your accounting in order, like cash flow management and profit and loss statements (also called the Income Statement).

How do I Reconcile a Bank or Credit Card Statement?

Easily—especially with Kashoo! With Kashoo, there are two ways to do bank reconciliation. First (and recommended), you can set up a bank feed. This is where Kashoo talks to your bank on a daily basis behind the scenes, bringing in the latest transactions from your bank. 

Alternatively, you can upload a file. If you have a lot of historical bank transactions to import, you may need to upload a file as the maximum amount of data a bank feed can usually import is 30 to 90 days.

BONUS TIP - Check out Kashoo’s recording of our Bank Reconciliation Workshop below:

 
 
 
 
 
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Wistia video thumbnail - Bank Reconciliation
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So that’s about it! With Kashoo, bank reconciliation is no mystery. But as always, if you have questions, shoot us a note at
answers@kashoo.com! 

Topics: Know and Grow Your Business, Accounting Basics