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Writer's pictureLiza Hanks

What is a Bank reconciliation?

Updated: Jun 15, 2023

Your accountant mentioned it and you nodded. I did that too! I had no idea what he meant.


When you run a business - whether it is a sole trader or a Limited Company you will receive money and pay money. You will record these as sales invoices (to receive money) or purchase invoices (to pay someone money) This money will flow in and out of your bank account. This is why is it is really important to have a separate bank account for your business.


Person checking their online bank



Your Bank Statement is the TRUE record of money movements


That is every payment (debit/ Minus) you have made including

  • debit card payments,

  • cheques,

  • direct debits (bill payments, bank charges)

  • bank transfers (bill payments/customer refunds)

  • standing orders (loan repayments)

and every payment you received (credit/ Plus) including

  • customer payments

  • supplier refunds

  • interest payments

The book accounts, where you record invoices is what your business THINKS is happening with its money


So in your accounting software you record (or post) every sales and purchase invoice. Matching your book accounts to your bank statement is called RECONCILING. It is just a double check to make sure that your records of money flowing in and out align with your bank account.


But better than this - it will also give you a small look into the future too! More about this HERE.


So what is a bank reconciliation?

It is a matching of all of the actual movements of money has happened in your bank account to what you think has happened in your book accounts.


Why bother though? It is a faff to do, surely the accountant sorts this stuff out?


If you are thinking this, I promise I will save you money if you read my next blog

Why bother with Bank Reconciliations?

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