Bank reconciliation: matching your records to your bank statement
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Key takeaways
Bank reconciliation is the process of matching internal financial records to a bank statement to catch errors or discrepancies.
Regular reconciliation, monthly at minimum, helps catch mistakes while they’re still easy to fix.
International transactions add complexity, since currency conversion and timing differences can cause records and statements to not match immediately.
A discrepancy doesn’t always mean an error; sometimes it just reflects a timing difference that resolves itself.
Keeping detailed notes on international transactions makes reconciling them far less time-consuming.
Bank reconciliation is the process of matching records to a bank statement to catch errors and discrepancies. Here’s how to do it, especially when international transfers are involved.
What is bank reconciliation?
Bank reconciliation is the process of comparing a business’s own financial records, such as a bookkeeping system or accounting software, against a bank statement to confirm they match, and to identify and resolve any discrepancies. It’s a routine but important check that catches errors, whether from a bank mistake, a missed entry in internal records, or fraud.
How to reconcile your accounts step by step
Gather the bank statement and internal records for the same period.
Compare each transaction, matching deposits, withdrawals, and transfers between the two sources.
Flag any discrepancies, including transactions that appear in one record but not the other.
Investigate each discrepancy. Some are simple timing differences, like a transaction still pending; others may indicate an actual error.
Correct records or contact the bank, depending on where the error originated.
Confirm the final balances match once all discrepancies are resolved or explained.
Common mistakes with reconciliation
Reconciling too infrequently. Waiting months to reconcile makes it much harder to track down the source of a discrepancy, since the relevant details fade from memory.
Assuming every discrepancy is an error. International transactions in particular can show up on different dates in records versus a bank statement due to processing time, which isn’t necessarily a mistake.
Not documenting international transactions in enough detail. A vague entry like “transfer” without the amount in both currencies and the exchange rate makes reconciling much harder later.
Record-keeping tip
Set a specific, recurring day each month dedicated to reconciliation, and document the specific steps of the process in writing. This helps ensure it actually happens consistently, and makes it far easier to hand the task off temporarily without losing consistency.
Reconciliation and international business payments
For small businesses making international payments, reconciliation needs to account for currency conversion, fees, and timing differences that standard domestic guidance doesn’t address. An international payment recorded in the books on the date it was initiated might not appear on a bank statement until several days later, once it actually clears, and the exact amount debited might differ slightly from what was expected if fees or exchange rates were applied differently than anticipated.
Good bookkeeping practices(opens in new window) that record the initiation date, the expected settlement date, the currency, and the exchange rate for every international transaction make this reconciliation process far more manageable, since comparisons are being made against detailed expectations rather than trying to reconstruct what happened from a vague memory of the transaction. Consistent invoicing and accounting tools(opens in new window) that support multi-currency entries help keep this level of detail organized without extra manual work.
Common causes of a discrepancy during reconciliation
A mismatch between records and a bank statement often comes down to a timing difference, a check that hasn’t cleared yet, a bank fee that wasn’t recorded, or occasionally a genuine error on either side, worth identifying specifically rather than simply adjusting records to force a match.
How often small businesses should reconcile accounts
Reconciling monthly is a common baseline for a small business, though a business with high transaction volume or frequent international payments may benefit from reconciling more often, catching an error while it’s still fresh and easy to trace back to its source.
Reconciling accounts with foreign currency transactions
A business that regularly makes or receives international payments finds reconciliation slightly more complex, since the exchange rate applied by the bank might differ slightly from what was initially recorded, making it worth tracking the specific rate used for each transaction rather than assuming a single flat rate throughout.
Why unreconciled accounts create problems at tax time
Entering tax season with accounts that haven’t been regularly reconciled throughout the year often means discovering a backlog of discrepancies all at once, considerably harder to resolve accurately than catching and correcting each one shortly after it occurred.
Common questions about reconciliation
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How often should I reconcile my accounts?
Monthly reconciliation is a common minimum for most small businesses, though businesses with high transaction volume or significant international activity may benefit from reconciling weekly. The key is doing it regularly enough that discrepancies are caught and investigated while the details are still fresh and easy to trace.
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What should I do if I find a discrepancy I can’t explain?
Start by checking whether it’s a timing issue, such as a transaction still pending or one that hasn’t posted yet on either side. If it remains unexplained after checking timing, contacting the bank to inquire about the specific transaction, and reviewing internal records for a possible entry error or omission, is the next step.
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Why does an international transfer sometimes show a different amount than I expected?
This is often due to the exchange rate applied at the time the transfer actually processed, which can differ slightly from the rate seen when initiating it, along with any fees deducted. Recording the expected rate and amount at initiation, then comparing it to what actually posted, helps in understanding and explaining any difference.
In Summary
Reconciliation is a routine check that catches errors before they compound, and for businesses with international payments, it requires a bit more patience and detail than purely domestic reconciliation. Keeping thorough records of every international transaction’s currency, rate, and timing turns reconciliation from a guessing game into a straightforward comparison.
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