Why Reconciliation Matters So Much
Bank reconciliation compares your accounting records to your bank statement. The goal is to explain every difference between the two — and to confirm that the two will eventually agree.
When reconciliation is done sloppily (or skipped), errors hide in the gap between "book balance" and "bank balance." Over time, these hidden errors compound. A reconciliation that should take 30 minutes after a month of skipping can take a day after a year of skipping.
Done consistently, reconciliation catches:
- Duplicate entries in your accounting system
- Transactions entered but never sent (checks that never cleared)
- Bank errors (rare but real)
- Unauthorized transactions
- Timing differences that could indicate fraud or error
Sohovi automatically finds every duplicate in your dataset — including near-matches — and shows you exactly which rows are affected.
The Systematic Reconciliation Process
Step 1: Confirm opening balance The ending balance from last month's reconciliation should match the opening balance in this month's accounting records. If they don't match, start there.
Step 2: Match cleared items Go through your bank statement line by line. For each item on the bank statement, confirm it appears in your accounting records:
- Same amount
- Same date (or near it — allow for float)
- Coded to the correct account
Mark each matched item as cleared in your accounting software.
Step 3: Identify outstanding items Items in your accounting records that haven't cleared the bank yet: outstanding checks, deposits in transit. These are legitimate timing differences.
Step 4: Calculate Accounting book balance + outstanding deposits - outstanding checks = Bank statement balance
If this equation doesn't balance, you have an unexplained difference to find.
Step 5: Investigate differences An unexplained difference is a data quality problem. Common causes:
- A transaction in your records but not the bank (error or timing)
- A transaction on the bank statement not in your records (missing entry or bank fee)
- Same transaction entered twice in your records (duplicate)
- Wrong amount entered
Work from the difference amount. If you're off by $47.50, search your records for a $47.50 transaction. If you're off by a round number like $1,000, look for a transposition error (e.g., $100 entered as $1,000).
Preventing Future Reconciliation Problems
- Reconcile monthly, not quarterly or annually
- Enter transactions in real time, not in batches at month-end
- Never edit a transaction that has already cleared — if there's an error, create a correcting entry
- Use bank feeds (QuickBooks, Xero, FreshBooks all support this) to automatically import bank transactions, which catches entries you forgot to make
