The complete guide to bank reconciliation

Bank reconciliation is essential for ensuring rigorous and reliable cash flow management within a company.
By comparing accounting entries with bank statements, it becomes possible to detect and correct discrepancies, thereby maintaining accurate financial records.
Through this comprehensive guide, Xpollens invites you to explore everything you need to know about bank reconciliation, a highly effective technique for ensuring a company’s financial health, achievable manually or through dedicated software.
What is bank reconciliation?
Bank reconciliation involves verifying that the transactions recorded in a company’s accounts correspond to those appearing on its bank statements. It differs from other accounting processes, such as matching (lettrage), and ensures precise and regular financial control.
What is meant by bank reconciliation?
Bank reconciliation, or bank reconciliation process, is a crucial step in company management. It is a control process that compares accounting entries recorded in the company’s account 512, often referred to as the “bank account,” with the details of bank statements provided by the financial institution.
This process ensures that the accounting balance matches the bank balance at a given date.
What are the objectives of bank reconciliation?
The primary goal of bank reconciliation is to verify the consistency between bank balances and accounting records, detecting any omissions, for example.
Additionally, it helps quickly identify anomalies such as unrecorded bank fees, overdraft charges, or incorrect deductions.
By providing a clear and up-to-date view of a company’s financial flows, bank reconciliation contributes to rigorous cash flow management. It is essential for making informed financial decisions.
How does bank reconciliation differ from account matching?
Although bank reconciliation and account matching are often confused, they serve different purposes.
Account matching involves linking debit and credit entries to ensure that each transaction has been properly recorded and that expenses related to the same invoice or payment are correctly accounted for.
In contrast, bank reconciliation goes beyond simple matching by comparing internal records with those on bank statements.
While matching is mainly used to track payments related to invoices, bank reconciliation ensures overall consistency between an organisation’s accounting records and the information provided by the bank.
These two practices complement each other. Matching helps maintain internal accuracy, while bank reconciliation ensures that accounts align with actual transactions. Together, they contribute to precise, reliable, and financially compliant accounting management.
What are the benefits of bank reconciliation for a business?
For professionals, bank reconciliation offers multiple benefits, contributing to more rigorous financial management and better cash flow control.
- Ensuring the reliability of accounts: Bank reconciliation guarantees precision and reliability.
- Identifying anomalies and inconsistencies in accounting records.
- Real-time cash flow tracking and financial forecasting.
- Better cash flow management.
- Impact on debt collection: Improving the recovery process and simplifying client follow-ups.
- Optimising financial decision-making thanks to a clear view of cash flows.
This series of benefits highlights the importance of regularly performing bank reconciliations to ensure a company’s financial health and optimise its accounting management.
How to conduct a bank reconciliation?
Carrying out an effective bank reconciliation requires following several precise steps.
1. Gathering necessary documents
Before starting, it is important to collect all relevant documents, including:
- Bank statements for the relevant period: These provide a detailed list of transactions carried out by the organisation during the period to be reconciled.
- Account 512 (“Bank Account”): This account records all the company’s financial transactions, such as payments made and receipts collected. It is a primary reference in accounting.
- Supporting documents for transactions: These include cheque deposits, cash deposits, transfers, and any other document proving recorded financial transactions.
Once this documentation is gathered, the reconciliation process can begin.
2. Matching opening balances
Matching the opening balances is a fundamental step to ensure the comparison starts correctly.
This step involves verifying that the opening balances of the bank account and account 512 match. If they differ, it will be necessary to go back to the previous period to identify and correct discrepancies before continuing with the reconciliation.
3. Checking bank and accounting entries
Transaction verification is at the core of the bank reconciliation process. It involves comparing, one by one, the transactions recorded in account 512 with those appearing on the bank statements.
This step identifies missing entries and ensures that all transactions have been correctly recorded in the company’s accounts.
Similarly, it helps to detect discrepancies between the two amounts and anomalies such as unexpected withdrawals, overdraft fees, or unrecorded charges.
This meticulous process ensures that every transaction has been accurately accounted for and that the accounts faithfully reflect actual cash movements.
4. Preparing the bank reconciliation statement
Once the verification is complete, it is necessary to draft the bank reconciliation statement, summarising the identified discrepancies. This must include:
- Any transaction recorded in accounting but not appearing on the bank statement (e.g., a cheque issued but not yet debited).
- Any transaction appearing on the bank statement but not yet recorded in accounting (e.g., a late transfer).
The reconciliation statement must be precise and comprehensive, as it serves as a basis for adjusting accounting entries and correcting detected discrepancies. Ideally, at the end of this step, there should be no balance difference.
Bank reconciliation can be performed traditionally using a spreadsheet such as Excel. This method allows manual creation of comparison tables, data entry, and calculation of discrepancies.
Although effective for small businesses, this approach can be time-consuming and prone to human errors, especially in data entry.
For larger organisations or those looking to improve efficiency, using dedicated accounting software is highly recommended. These tools, such as those provided by Xpollens, automate much of the bank reconciliation process. With advanced features, the software synchronises all data directly with the company’s accounting records, ensuring reliability, security, and real-time cash flow tracking.
Example of a bank reconciliation template
Bank account | ||
Balance to be reconciled as of …/…/… | Debit | Credit |
Transaction description | ||
Transaction n°1 | ||
Transaction n°2 | ||
Transaction n°… | ||
Total | ||
Balance |
Account 512 | ||
Balance to be reconciled as of …/…/… | Debit | Credit |
Transaction description | ||
Transaction n°1 | ||
Transaction n°2 | ||
Transaction n°… | ||
Total | ||
Balance |
To use this table effectively, start by entering the opening balance and bank transactions in each row corresponding to the indicated date. Then, do the same for account no. 512. Compare the information in each “Debit” and “Credit” column to identify discrepancies.
This example template is designed to help you establish a clear reconciliation statement between the bank and your accounting records, ensuring that payments and entries are correctly recorded. This bank reconciliation example can be replicated manually or using software such as Excel to simplify the process.
Common errors in bank reconciliation and how to overcome them
Performing bank reconciliation can sometimes be complex, and common mistakes can arise. If not identified and corrected, these errors can compromise the reliability of accounts and cash flow management.
- Discrepancies between bank and accounting balances: Differences between the balance recorded in account 512 and the one appearing on the bank statement are common. Ensure no transactions have been omitted and check for unrecorded items.
- Timing differences (cheques, transfers): A transaction date mismatch between accounting records and bank validation can lead to discrepancies. For example, a cheque may be recorded in the accounts on its issue date, while it only appears on the bank statement a few days later, when it is cashed.
- Omissions and incorrect data entry: Some transactions may not be recorded at all, or incorrect amounts may be entered.
To overcome these anomalies and ensure an effective bank reconciliation process, it is important to adopt certain best practices:
- Be proactive and meticulous: Conduct verification procedures periodically and regularly monitor cash inflows and outflows to identify and correct any discrepancies before they become problematic.
- Use techniques to ensure balance consistency: When verifying entries, it can be useful to systematically compare each transaction listed on the bank statement with those recorded in the accounts. Make sure to check each invoice to avoid missing any.
- Regularise entries with precision: When discrepancies are identified, they should be corrected immediately. This may involve entering missing transactions, correcting erroneous amounts, or adjusting dates to reflect the actual transactions.
An alternative is to use automated management solutions to simplify the process. These solutions incorporate features such as those offered by Xpollens, which automate bank reconciliation, synchronise data in real-time, and provide alerts in case of discrepancies.
How to automate bank reconciliation?
To efficiently automate the bank reconciliation process, Xpollens offers an innovative and integrated solution.
By leveraging their Banking-as-a-Service API, businesses can synchronise their financial flows in real-time with banking systems.
Xpollens enables automated and accurate banking operations management, reducing human errors and simplifying reconciliation. This solution ensures seamless and secure transaction tracking, optimising financial processes and freeing businesses from manual management constraints.
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FAQ: bank reconciliation
Who carries out bank reconciliation in a company?
Bank reconciliation is generally performed by the company’s accounting department. In some organisations, this task may be outsourced to an external accountant or a chartered accountant. The objective is to ensure that transactions are accurately reflected in the company’s accounts.
How often should bank reconciliation be carried out?
It is recommended to perform bank reconciliation at least once a month, at the end of the accounting period. However, for businesses with a high volume of transactions, it may be advisable to conduct it more frequently, such as weekly, to ensure precise cash flow management.
What are the risks of not performing bank reconciliation regularly?
Failing to conduct bank reconciliation regularly can lead to undetected errors, increasing discrepancies between accounting records and actual bank balances, and poor cash flow management. It can also complicate the preparation of financial statements and expose the company to significant financial risks.