Bank reconciliation sounds like housekeeping, and that is exactly why it gets skipped. But it is the single control that determines whether every other number in your business is trustworthy — your profit figure, your GST claim, your tax return. Get it right monthly and everything downstream becomes straightforward.
What is bank reconciliation?
It is the process of matching every transaction recorded in your accounting software against the transactions that actually appear on your bank statement, then confirming that your closing ledger balance agrees with the bank's balance. Where the two differ, the difference must be explained by a known item — usually a payment issued but not yet cleared. Anything you cannot explain is an error waiting to be found.
Why does it matter so much?
Because every report you use is built from the same underlying data. An unreconciled bank account means your profit and loss might be missing income or double-counting expenses, your BAS might overstate or understate GST, and your tax return is being prepared from figures nobody has verified. It is also the fastest way to spot fraud or an unauthorised direct debit — a subscription you cancelled six months ago is still being charged, and only reconciliation surfaces it.
How often should you reconcile?
Monthly is the minimum. Weekly is better if you process a high volume of transactions or rely on live cash flow figures. The reason to reconcile frequently is not diligence for its own sake — it is that a discrepancy from last week is investigable, while a discrepancy from eleven months ago usually is not. Businesses that leave it all to June routinely pay their accountant more to reconstruct records than the bookkeeping would have cost throughout the year.
What does the process actually involve?
Start with the opening balance in your software matching the closing balance from the previously reconciled period. Import or review the bank feed for the period, then code each transaction to the correct account with the right GST treatment. Match payments to invoices and receipts to bills so your receivables and payables stay accurate. Record anything the bank has charged you that is not yet in your books — fees, interest, merchant charges. Then confirm the closing balance in your ledger equals the closing balance on the bank statement, and investigate any difference before moving on.
What causes a reconciliation not to balance?
A short list covers most cases: duplicated transactions where a payment was entered manually and then matched again from the feed; transfers between business accounts recorded on one side only; bank fees and interest never entered; transactions dated to the wrong period; an incorrect opening balance carried in when the file was set up; and payments made from a personal account for business purposes that were never recorded at all. Work through them in that order and the cause usually appears quickly.
Does accepting bank feed matches count as reconciling?
Not on its own. Software like Xero makes matching fast by suggesting a coding for each feed line, and clicking OK on those suggestions is genuinely useful — but it is only the coding step. Real reconciliation includes the balance check: confirming that after all that coding, your ledger agrees with the statement. A bank feed can drop transactions or duplicate them after a connection breaks, and only the balance comparison reveals it. Software also cannot tell you that a transaction was coded to the wrong expense account, only that it was coded to something.
What else should you reconcile?
Beyond the main trading account: credit cards, loan accounts, merchant facilities such as Square or Stripe, and any PayPal balance. Merchant accounts in particular need attention, because the amount deposited into your bank is net of fees while the sale recorded is gross — leaving a gap that has to be accounted for. Payroll liabilities and the GST control account are also worth reviewing each quarter so surprises do not appear at lodgement.
Reconciliation is the difference between records and reliable records. The Metier Group keeps Perth business accounts reconciled, reviewed, and ready for lodgement through our bookkeeping services. Contact us if your accounts have drifted and you would rather not face it alone in June.