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Bank reconciliation is a necessary part of bookkeeping that helps businesses and individuals maintain accurate records of their financial transactions. In essence, bank reconciliation involves matching the balances in a business’s bank statement with accounting software records to make sure that all transactions are recorded correctly and accounted for. This process helps to catch discrepancies and prevent errors from slipping through the cracks.

Importance of Bank Reconciliation

The importance of bank reconciliation cannot be overstated. It helps to ensure that a company’s financial records are up-to-date and accurate. Bank reconciliation is crucial for bookkeeping for several important reasons, including preparing financial statements, tracking expenses and revenue, and tax compliance. By regularly reconciling bank accounts, businesses and individuals can identify and resolve any discrepancies, preventing severe financial problems from arising.

How to Do Bank Reconciliation?

Bank reconciliation may involve contacting the bank to correct errors or adjust the business’s or individual’s records. To perform bank reconciliation, accountants of small businesses typically start by obtaining a copy of their bank statements. They then compare this statement with their accounting records, including deposit slips, check registers, and debit card transactions. Any discrepancies should be investigated and resolved.

What is the Primary Purpose of Bank Reconciliation? 

One of the key benefits of bank reconciliation is that it helps to catch errors and discrepancies early on. For example, suppose a business or individual notices a transaction on their bank statement that they do not recognize. In that case, they can investigate the transaction to determine if it was a mistake. Bank reconciliation can help to prevent fraud and unauthorized transactions from going undetected.

Financial reports and controlling money can be beneficial for businesses, as they can help them to make informed decisions about their financial management strategies. Another benefit of bank reconciliation is that it helps small business owners and individuals to stay on top of their finances. Regularly reconciling their bank accounts allows business owners to see where their money is spent and identify any patterns or trends in their spending.

Bank Reconciliation vs. Bookkeeping

Bank reconciliation and bookkeeping are two separate but related activities in accounting. Both activities are essential for ensuring the accuracy and completeness of a company’s financial records.

What is Bookkeeping?

Bookkeeping is the systematic act of recording a company’s financial transactions, including sales, purchases, payments, and receipts. The goal of bookkeeping is to ensure that all transactions are accurately recorded so that the company’s financial records accurately reflect its financial position.

What is Bank Reconciliation?

Bank reconciliation compares a company’s records of its bank transactions to the bank’s records of the same transactions. The goal of bank reconciliation is to ensure that the company’s records accurately reflect the balance in its bank account and that any discrepancies are identified and corrected. Bank reconciliation includes accounting for outstanding checks, deposits in transit, and other transactions that may affect the accuracy of the bank balance.

How Often Should Bank Reconciliation be Done?

It is highly recommended to reconcile bank accounts at least once a month, with additional reconciliation performed based on the specific circumstances. However, the frequency of bank reconciliation depends on some factors. For example, the size of the business or financial transactions is an essential factor in determining the frequency of bank reconciliation.

For small businesses and freelancers, it is recommended to reconcile their bank accounts at least once a month. Monthly bank reconciliation catches errors early and ensures accurate and up-to-date financial records.

For larger businesses with more complex financial transactions, it may be necessary to reconcile their bank accounts more frequently, such as on a weekly or bi-weekly basis. Weekly bank reconciliation can help to catch errors and discrepancies more quickly and ensures that the business’s financial records are as accurate as possible.

In addition to monthly or weekly reconciliation, it is also a good practice to reconcile the bank account at the end of each financial year. This helps ensure that the business’s financial records are accurate and complete and provides a starting point for preparing the business’s tax returns.

What are Deposits in Transit on a Bank Reconciliation?

Deposits in transit are considered “outstanding” or “uncleared” on a bank reconciliation. Deposits in transit are funds received by a company but not yet processed by the bank. They are outstanding on the company’s books until the bank records them, and are subtracted from the account balance on a bank reconciliation to arrive at the true balance per the bank statement.

For example, you may charge a customer’s credit card for a service you have provided. That transaction will be recorded in your books and accounting software. However, it will take a few days or more to receive that money in your bank account. If this event happens at the end of the month, the amount will be recorded as deposits in transit.

Deposits in transit are sometimes called “undeposited funds”. However, undeposited funds are commonly used for check payments received from customers and not yet deposited in company bank accounts.

Outstanding Checks: Definition and Example

Outstanding checks are uncashed or uncleared checks issued by a company. They can also refer to checks that have been deposited but not yet cleared and deducted from the account balance. Outstanding checks can also be referred to as “open checks” or “uncashed checks.”

Outstanding checks can cause discrepancies between a company’s bank balance records and the actual balance reported by the bank. Regular bank statement reconciliation is crucial to identify and account for outstanding checks that may impact the accuracy of financial records.

How to do Bank Reconciliation in QuickBooks Online?

QuickBooks Online can simplify the bank reconciliation process. Below is a step-by-step guide to performing a bank reconciliation in QuickBooks Online. By following these steps, you can reconcile your bank accounts in QuickBooks Online quickly and easily.

  1. Log in to QuickBooks Online and go to the “Banking” menu.
  2. Select the bank account in QuickBooks that you want to reconcile.
  3. In the “Reconcile” tab, enter the statement ending date and the ending balance from your bank statement.
  4. QuickBooks Online will display a list of all transactions that match the statement ending date. Verify that each transaction on your bank statement is also reflected in QuickBooks Online. If a transaction is missing, add it by clicking the “Add transaction” button.
  5. If you find any discrepancies between your bank statement and QuickBooks Online, make the necessary adjustments. For example, if a check was recorded as cleared in QuickBooks Online but has not yet cleared your bank, mark the check as “uncleared” in QuickBooks Online.
  6. When you are satisfied that your records match your bank statement, click the “Reconcile now” button. QuickBooks Online will compare your ending balance with the bank’s ending balance and identify any discrepancies.
  7. If there are discrepancies, QuickBooks Online will display a list of transactions that need to be reviewed. Review each transaction and make the necessary adjustments.

When all discrepancies have been resolved, click the “Finish now” button to complete the reconciliation process. QuickBooks Online will update your bank account balance and record a reconciliation report for your records.

How to Undo Bank Reconciliation in Quickbooks Online?

If you modified the amount or deleted a reconciled transaction, you may need to undo the previous bank reconciliation in Quickbooks Online. To undo a bank reconciliation in QuickBooks Online, you’ll need to follow these steps:

  1. Go to the “Lists” menu and select “Chart of Accounts.”
  2. Find the bank account that you reconciled and click on it to open the account details.
  3. From the “Action” drop-down menu, select “Use Register.”
  4. Find the reconciliation that you want to undo and click on the “Reconcile” button to open the reconciliation window.
  5. Click the “Undo Last Reconciliation” button at the bottom of the reconciliation window.

This action will remove all transactions that were marked as reconciled during the last reconciliation and make them available for reconciliation again. 

If you have already closed the reconciliation for the period, you will need to manually adjust the cleared balance in the account register to match the statement balance. This can be done by adding or deleting transactions in the register to match the statement balance.


In conclusion, bank reconciliation is an important process that helps small business owners maintain accurate records of their financial transactions. By regularly reconciling their bank accounts, small business owners can quickly catch errors and discrepancies, stay on top of their business finances, and make informed decisions about their financial management strategies. Whether a business owner or a freelancer, it is important to make bank reconciliation a regular part of your business financial management process.

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