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Dictionary
Debitoor's accounting dictionary
Bank reconciliation

Bank reconciliation - What is bank reconciliation?

Bank reconciliation is the process of matching and balancing figures in accounting records with those displayed on a bank statement

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Bank reconciliation is an important part of managing finances. In business accounting, a credit must be matched with a debit to balance out the accounts.

In other words, if a customer makes a payment, that payment needs to be matched with its corresponding invoice to effectively balance out the amounts.

Bank reconciliation needn't be tedious. Matching transactions can be as simple as uploading a bank statement with Debitoor

How it works

A bank statement will feature all of the payments received from customers. Each payment corresponds to an invoice sent by your company and an amount registered in your records. These two amounts ‘match’ and bank reconciliation refers to this matching process.

Similarly, an amount owed to a supplier should be registered in expenses as the amount is removed from your bank account.

If a transaction appears in the accounting records but does not appear on the bank statement, then it is considered to be 'outstanding'. The outstanding items represent possible discrepancies between the accounting records and the bank statement, which will need to be uncovered.

Discrepancies

Bank reconciliation discrepancies could include:

  • Cheques documenting a different amount than the amount received by the bank
  • Money that was received but never recorded in the accounting records
  • Payments retrieved from the bank without the business' knowledge

Performing a bank reconciliation regularly can drastically reduce the amount of errors that can occur in an accounts system and makes it easier to find absent purchase and sales invoices.

Bank reconciliation and Debitoor

Debitoor recently introduced automatic bank reconciliation. This means no more matching transaction by transaction. By uploading your bank statement, each transaction will be matched with its corresponding invoice.

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