Bank reconciliation explained for small businesses

Why it matters

Your bank statement shows what actually happened to your money. Your books show what you recorded. Reconciling catches the gap between the two: a payment you forgot to record, a bank charge you did not know about, or a duplicate entry.

A simple way to do it

1. Get the statement for the period, usually a month.
2. Go through it line by line.
3. For each line, find the matching entry in your books, such as a customer payment or a bill payment, and match them.
4. If there is no matching entry, work out what it was and record it. Bank charges and owner top-ups are common.
5. When every line is matched, the balance on your statement and the balance in your books should agree.

Why your bank and your books disagree

• Timing. A payment you recorded has not cleared yet, or the bank has cleared something you recorded last month.
• Bank charges and fees you have not recorded.
• Money received that was never recorded, such as a transfer from a customer.
• Duplicates, where the same payment was recorded twice.
• Transfers between your own accounts, which show up on both statements but are not income or spending.

How often to do it

Monthly is a sensible minimum. Small differences are easy to trace when they are a few weeks old and painful when they are a year old.

Doing it in KudiBooks

You add a bank account, import a CSV statement or enter lines by hand, then match each line to an entry that already exists, or categorize it to create a new one. When a customer’s payment is already recorded against an invoice, matching the bank line to it means the money is not counted twice. Live bank connections are not available yet, so statements are imported as CSV.

Questions