Glossary
What is a bank reconciliation?
Bank reconciliation is matching each transaction on the bank statement to the accounting records, so the bank balance in the books agrees with the balance the bank reports. Any difference is a transaction missing, duplicated or recorded wrongly.
Also called: Bank rec
Most accounting software suggests matches from a bank feed, and someone confirms each one. A month is usually treated as reconciled only when every bank, card and payment account agrees to its statement at the month end. If only some accounts have been checked, the bank position is still unconfirmed.
Reconciliation is the main check that the cash figures in the management accounts are real.
How it is calculated
Balance on the bank statement + money received but not yet cleared − payments made but not yet cleared = bank balance in the books.
If the two sides do not agree after those timing items, something is missing, duplicated or recorded at the wrong amount.
Worked example
Example · illustrative figures
At 31 October the bank statement shows A$24,600. A customer payment of A$1,200 was received on 31 October but clears on 1 November, and a supplier payment of A$800 has not yet left the account.
A$24,600 + A$1,200 − A$800 = A$25,000, which agrees with the bank balance in the books. The month is reconciled for that account.
How to read it
The useful output is the list of what does not match, and how old each item is. A few recent timing items are normal. Lines that have sat unmatched for weeks usually mean a transaction was coded to the wrong place, entered twice or never entered.
Common mistakes
- Reconciling to the bank feed rather than the statement, so a feed that dropped transactions goes unnoticed.
- Forcing a match to the nearest amount to clear the list.
- Forgetting card, PayPal, Stripe and other payment accounts, which need reconciling too.
- Treating the month as reconciled when only some accounts have been checked.
How it shows in Nella
Nella’s Financial Controller reports whether each account is reconciled for the month, and treats a partly reconciled account as unconfirmed rather than reconciled. Matching the lines is done in your accounting software. See month-end close readiness.
Related
Nella provides financial information and education, not accounting or tax advice.
See it on your own numbers
Nella works these figures out from your books every month. Nella Pro is free for 60 days, no card, including the entries you approve posted to your books. After that, Nella Free keeps reading your books, with no time limit.
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