Introduction
A bank reconciliation is an important bookkeeping process that compares a business’s accounting records with its bank statement. Ideally, the two balances should match after accounting for legitimate timing differences and outstanding transactions. When they do not, it can be frustrating, but a discrepancy does not necessarily mean there is a major financial problem.
The key is to investigate the difference systematically rather than making an unexplained adjustment.
How to Fix Incorrect Bank Reconciliation
1. Start With the Reconciliation Date
First, confirm that the bank statement and accounting records cover the same period. Using the wrong statement date or reconciliation period can create an apparent discrepancy even when the underlying transactions are accurate. Check the opening balance as well. If the previous reconciliation was incorrect, the current reconciliation may inherit the problem.
2. Check the Difference
Calculate the exact difference between the bank balance and the accounting balance. The size of the discrepancy can sometimes provide a clue. For example, a small difference may be caused by a bank fee or an incorrectly entered transaction. A larger difference could indicate a missing transaction, duplicate entry or more significant bookkeeping error.
Avoid changing figures simply to make the reconciliation balance. The adjustment should be supported by a genuine transaction or accounting correction.
3. Look for Missing Transactions
Compare the bank statement with the transactions recorded in the accounting system. Look for deposits, withdrawals, transfers, fees and other payments that appear on the bank statement but are missing from the books.
This can happen when transactions are recorded late or when automated bank feeds have not imported every transaction correctly. Adding legitimate missing transactions to the accounting records may resolve the discrepancy.
4. Check for Duplicate Entries
Duplicate transactions are another common cause of reconciliation problems. A payment or deposit may have been entered manually and then imported again through a bank feed. Review transactions with similar dates, descriptions and amounts. If a transaction has been recorded twice, the duplicate entry may need to be removed or corrected.
5. Review Transaction Amounts
Even when the correct transaction exists in the books, the amount may have been entered incorrectly. Compare individual payments and deposits with the corresponding bank statement entries. Pay particular attention to transactions entered manually, as typing errors can easily result in small reconciliation differences.
6. Consider Outstanding Transactions
Not every difference indicates an error. Some transactions may have been recorded in the accounting system but have not yet appeared on the bank statement. Outstanding cheques, deposits in transit and other timing differences can cause the balances to differ temporarily. These should be documented and carried forward appropriately rather than deleted or artificially adjusted.
7. Check Bank Fees and Interest
Bank fees and interest payments can also cause discrepancies when they have not yet been entered into the accounting system. Review the bank statement for service charges, transaction fees, interest or other deductions. Once identified, these transactions should be recorded correctly according to the business’s accounting process.
Conclusion
If the difference cannot be explained, it may be worth seeking professional bookkeeping assistance rather than forcing the accounts to balance.
Ultimately, a bank reconciliation that does not balance is a signal to investigate, not simply an inconvenience. By checking dates, missing transactions, duplicates, amounts, outstanding items and bank charges, businesses can identify the underlying cause and maintain more accurate financial records.
