Bank reconciliations | praise them!
- Aug 24, 2022
- 2 min read
They're the foundation of good decision making. They can save you tax. By Jove, you feel good after doing them!
Seriously? Yes!
And we'll show you here why.
OK, we all know the basics: the balance in your accounting system must agree to the balance shown on your bank statement. And a bank "rec" is the only way to check this.
In fact, before we'll start our AccountsUp! process for you, we need you to have done one as-at your year end date.
So let's look at why:
"You only know, what you only know"
Your day to day is made up of income and expenses. This is your profit. How your business is doing.
Most of this information (if not all) comes from the money coming in and going out of your bank account. If Xero is missing any of these transactions, either because some have not been imported into Xero from your bank account, or you've not reconciled them in Xero's banking screen, then you don't have the complete picture.
And if your Xero is missing transactions then you've got issues. Here's four of them: 1. Your management accounts will be wrong and you can't then make informed decisions that will better your business.
2. Your Accounts will be wrong (these being the ones you sign as being accurate under your legal duties as a Director)
3. Your tax return will be wrong. And that could mean you're paying more (or less) tax than you need to. In any case, if HMRC come a-knocking, the first thing they'll do is compare your Accounts to your bank statement.
4. You've lost financial control.You don't have an accurate record of everything you're owed from your customers and what you owe to others (like your suppliers, your employees, and HMRC) because you've not recorded all the money coming in and out of your business.
And finally, it's a great feeling to know you're on top of your game. You're in control!
Further reading
Here's Xero's guide on how to actually run a bank reconciliation:
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