Bank reconciliation for a small business, in plain words

What does reconciling a bank account mean?

Your records — a cash book, a spreadsheet or accounting software — say what you think happened in an account. The bank statement says what the bank processed. business.gov.au calls a bank reconciliation a cross-check that the amounts in your cash book match the bank statements, and that is exactly what it is: two lists, compared line by line, with every difference explained.

It matters because every later figure is built on those lines. The GST on your BAS, your profit for the year and the cash you think you have all come from the same records, so a missed sale, a payment entered twice or a forgotten card fee flows straight into each of them. Bank records are also among the records an Australian business must keep, generally for five years.

Why do the statement and your records show different balances?

Timing. Card takings you recorded on the 31st may clear on the 2nd, and a payment you scheduled on the last day may leave the account the next business day. These are not errors. They are in transit, and they belong in the reconciliation as a note, not as a correction.

Duplicates. The same transaction recorded twice, often because two statement downloads overlapped by a few days, or because a payment was typed in by hand and later imported from the bank as well.

Missing lines. A month that was never imported, a second account or a credit card left out, or a cash sale banked without being recorded.

Transfers between your own accounts. Moving $2,000 from the business account to a tax savings account is money out of one and into the other. If only one of the two accounts is in your records, the transfer looks like a $2,000 expense or a $2,000 sale. It is neither, and it should be recorded as a transfer on both sides.

Fees and interest. Account fees, merchant fees and interest show up on the statement first, and until you record them your balance is out by exactly their amount. Keying errors make up the rest: typing $540 as $450 leaves a $90 difference, and a difference that divides evenly by 9 is the classic sign of two swapped digits.

How do you reconcile, step by step?

Start with the statement for one period, usually a month, and note its opening and closing balances. Check that your records open at the same figure: it should be the closing balance you agreed last time. If it is not, fix the earlier period first, or every later month carries the same gap.

Then tick off each line that appears in both, matching the amount and a date within a few days. What is left falls into two groups. Lines on the statement but not in your records — fees, interest, a direct debit, a customer payment you had not recorded — get added to your records. Lines in your records but not on the statement are either in transit, which you note, or mistakes, which you fix.

Finally, prove it. Take the statement’s closing balance, add deposits in transit and subtract payments not yet processed; the answer should equal your records’ closing balance. In an invented October, the statement closes at $18,420.55. Card takings of $1,250.00 recorded on the 31st clear on 3 November, and a $680.00 supplier payment recorded on the 31st leaves on 1 November: $18,420.55 + $1,250.00 − $680.00 = $18,990.55. Your records say $19,005.55 until you add the $15.00 account fee from the statement, which brings them to $18,990.55. Reconciled.

If a difference remains, find it rather than posting it to a catch-all account. Search for the exact amount and for half of it, since a payment entered on the wrong side moves the balance by twice its amount, and look for duplicates at the edges of the period, where statement downloads overlap.

How often should you reconcile?

Monthly, against each statement, is the usual rhythm for a small business, and weekly suits a business with a lot of transactions or tight cash. Reconcile before you prepare a BAS or a VAT return, because those figures are built from the same lines, and again at the end of the financial year — 30 June in Australia — before the books go to your accountant.

Reconcile every account the business uses, not only the main one: savings and tax accounts, credit cards, and any payment platform that holds money before paying it out. A loan account reconciles the same way, against the lender’s statement, and the loan repayment calculator shows how each repayment splits into interest and principal, which is how the two sides of the loan line up.

How does 2Fin help?

In 2Fin your records come from the bank in the first place, through a feed you connect with your own key, a statement upload or a spreadsheet feed. Rules categorise the transactions that repeat, each one is tagged business or personal, and transfers between your own accounts are kept out of the totals on Upcoming, so moving money to savings never reads as spending.

The balance check, on every plan, is the cross-check itself: type the closing balance and date from a statement, and Fin shows the balance it works out for that day, the difference and the likely reasons — a line of exactly the difference, one entered the wrong way round, a possible duplicate, a transfer with no other half, or a line either side of the cut-off. Each saved check is kept as history, and Data history lists every statement import and removed import, which is often where a month brought in twice or not at all shows up.

When a quarter closes, open any figure on the activity statement to see the transactions behind it, adjust them there and export the list; the accountant ledger and journal CSVs carry the same lines to your accountant, and on ELITE+ and AUTO+ a bookkeeper can have their own sign-in to your books. To see how your statement reads first, try it on your own bank file: Fin places every line, sets transfers, loan repayments, drawings and tax payments aside, and shows how cash moved across the quarter, read in your browser.