The most basic of these are bank reconciliations, where you compare the bank record in your accounts with the bank statement – i.e. your bank’s record of the transactions. This, incidentally is why many people get debits and credits the wrong way round – their only exposure to the terms is on their bank statement, not realising that the statement is a copy of the bank’s OWN records and therefore written from the bank’s point of view. A debit in their books will be credit in your own books.
I digress. The importance of comparing your record with your bank statement is obvious – mistakes get made, rarely by the bank, and ticking one off against the other will highlight where they are different, enabling you to put things right.
Any good computerised system will have some sort of bank reconciliation function built in, and a few of my clients actually use them, but if you really want to stand out, the most important thing is to review the items you haven’t managed to tick off. Ask yourself how old they are – in this day and age most transactions clear within a day or three, and cheques are a rare occurrence. This means any unticked items more than a few days old are almost certainly incorrect and will probably need removing.
Take the time to look at your unreconciled items and review them – your aim should be to keep the list as short as possible, and you should know why each item on the list hasn’t cleared. If you don’t know why not, find out.
Why is this important? Because unreconciled transactions are still in your bank records: they affect your accounting records and your bank balance will be incorrect. This isn’t an issue if an item is due to clear in the next couple of days – this is just a timing difference – but if that transaction is never going to clear get rid of it!