Xero and other recent accounting software solutions make it very easy to complete a bank reconciliation, i.e. matching accounting transactions to bank statement lines. A new client asked: how often should I do it? This post answers that question.
Before drafting financial statements
This is the traditional answer, because a bank reconciliation is one of many ways to check that your accounts have been entered correctly.
If your financial statements are only prepared annually, say for your tax return, then you would only complete a bank reconciliation once per year. Quarterly financial statements are useful if you are lodging quarterly Business Activity Statements to report GST.
However, there are other reasons to prepare a bank reconciliation.
Before contacting debtors
If you extend credit to any customers, you know that some of them will not pay on time and need to be contacted. Before you contact them, you should check that they haven’t paid yet.
This another situation where a bank reconciliation helps. As part of completing the bank reconciliation, you will need to enter customer payments into your accounting system.
Once the bank reconciliation is complete, you can then contact debtors, confident that they haven’t paid since your previous reconciliation.
Before paying creditors
This one is mostly relevant to larger businesses that have multiple staff working in different areas of the accounts.
Complete a bank reconciliation to ensure that your accounts correctly show that a bill has or has not been paid.
You don’t want to double-pay a bill, and you do want to know what hasn’t been paid yet.
Some of my clients complete a bank reconciliation daily.
Why does this help? When one of their customers calls, they can quickly check in Xero to see whether they should take the opportunity to talk to the customer about their outstanding invoice(s). My client collects invoices quicker, which keeps their cash flow healthy.
The answer for you?
Apart from the above, the answer will depend on the size of your business and your personal preference.
Hopefully this post helps you make the decision for your business. If in doubt, speak to your accountant.