Bank reconciliation is an important part of maintaining accurate bookkeeping records. It involves comparing the transactions and balance recorded in your accounting system with the information shown on your bank statement. When the two records do not match, you have a bank reconciliation discrepancy that needs to be investigated. How to Find and Fix Bank Reconciliation Discrepancies
Bank reconciliation discrepancies are common and can happen for many reasons, including data-entry mistakes, missing transactions, bank fees, timing differences, and duplicate entries. Identifying and correcting these differences promptly can help businesses maintain accurate financial records and make better-informed financial decisions. How to Find and Fix Bank Reconciliation Discrepancies
In this guide, we explain how to find and fix bank reconciliation discrepancies, including the most common causes and practical steps for resolving them.
What Is a Bank Reconciliation Discrepancy?
A bank reconciliation discrepancy occurs when your accounting records do not agree with your bank statement after accounting for legitimate timing differences.
For example, your bookkeeping records may show a payment of $500, while the bank statement shows $550. Alternatively, your accounting software may show a transaction that does not appear on the bank statement.
Not every difference indicates an error. Outstanding payments, deposits in transit, and other timing differences can cause temporary differences between your books and your bank account.
The goal of reconciliation is to identify the reason for each difference and determine whether it requires a bookkeeping adjustment.
Why Do Bank Reconciliation Discrepancies Occur?
There are several common causes of discrepancies during the bank reconciliation process.
Missing Transactions
A transaction may appear on your bank statement but not in your accounting records. This can happen when a bank fee, automatic payment, interest payment, or other transaction has not been entered into your bookkeeping system.
Duplicate Transactions
A transaction may accidentally be recorded twice. Duplicate entries can make your accounting balance different from the actual bank balance.
Data-Entry Errors
Typing an incorrect amount is another common source of bank reconciliation errors. For example, entering a $1,250 payment as $1,520 can create a discrepancy that remains until the transaction is corrected.
Timing Differences
Some transactions take time to clear. A cheque or electronic payment may be recorded in your books before it appears on your bank statement.
Similarly, a deposit may have been recorded in your accounting system but may not yet have been processed by the bank.
Bank Fees and Interest
Banks can automatically deduct service charges, transaction fees, or interest. If these amounts have not been recorded in your bookkeeping records, your accounts may not reconcile.
Unauthorised Transactions
An unfamiliar transaction on your bank statement could indicate an unauthorised payment or potential fraud. These transactions should be investigated promptly rather than simply adjusted in your accounting system.
How to Find Bank Reconciliation Discrepancies
Finding the source of a discrepancy requires a systematic approach. The following steps can help you identify where the difference occurred.
Step 1: Confirm the Opening Balance
Start by checking the opening balance in your accounting records against the opening balance on your bank statement.
If the opening balances do not match, review previous reconciliations. The problem may have originated in an earlier accounting period.
Correcting the historical issue first can prevent you from wasting time searching for a discrepancy in the current period.
Step 2: Check the Date Range
Make sure your bank statement and bookkeeping records cover exactly the same period.
A difference in dates can create apparent discrepancies because transactions may be included in one record but not the other.
For example, a transaction processed by the bank on the first day of a month may have been recorded in your books at the end of the previous month.
Step 3: Match Transactions One by One
Compare deposits and withdrawals between your bank statement and accounting records.
Check:
- Transaction dates
- Transaction descriptions
- Payment amounts
- Deposit amounts
- Supplier payments
- Customer receipts
- Bank transfers
- Direct debits
- Bank fees
Mark transactions as matched as you work through the records. This makes it easier to identify transactions that remain unexplained.
Step 4: Look for Duplicate or Missing Entries
Review your accounting records for transactions that appear more than once.
Then compare the bank statement against your books to identify transactions that appear on the bank statement but are missing from your accounting system.
Pay particular attention to automatic transactions because these are easy to overlook.
How to Fix Bank Reconciliation Discrepancies
Once you have identified the cause, the next step is to correct the discrepancy appropriately.
Correct Data-Entry Errors
If a transaction was entered incorrectly, update the original bookkeeping entry with the correct amount, date, or account.
For example, if a $750 payment was accidentally entered as $570, correcting the original transaction should resolve the difference.
Keep supporting documentation for significant corrections so there is a clear audit trail.
Remove Duplicate Transactions
If the same transaction has been entered twice, identify the duplicate and remove or reverse it according to your accounting procedures.
Be careful not to delete legitimate transactions simply because they have similar amounts or descriptions.
Record Missing Bank Transactions
If a transaction appears on the bank statement but is missing from your books, determine what it represents and record it correctly.
This may include bank charges, interest, merchant fees, loan repayments, or other transactions.
Using the correct account category is important because these entries can affect your profit and loss reports as well as your bank balance.
Account for Outstanding Transactions
If a payment has been recorded in your books but has not cleared the bank, it may simply be an outstanding transaction.
Likewise, a deposit that has been recorded but has not yet appeared on the bank statement may be a deposit in transit.
These timing differences do not necessarily require an adjustment. Instead, document them as reconciling items and monitor them until they clear.
Investigate Unauthorised Transactions
If you discover a transaction that you do not recognise, investigate it promptly.
Check receipts, invoices, payment records, and internal documentation. If the transaction appears unauthorised, contact your bank and follow its procedures for reporting suspicious activity.
Do not simply remove an unfamiliar transaction from your accounting records without understanding what it represents.
How to Prevent Future Bank Reconciliation Errors
Preventing discrepancies is usually easier than correcting them after they accumulate.
Consider implementing the following bookkeeping practices:
- Reconcile your bank accounts regularly.
- Keep receipts and invoices organised.
- Review bank transactions frequently.
- Use accounting software with bank feeds where appropriate.
- Limit duplicate data entry.
- Separate business and personal transactions.
- Review unusual transactions promptly.
- Maintain consistent bookkeeping procedures.
- Keep records of reconciliation adjustments.
Regular reconciliation can make discrepancies easier to identify because there are fewer transactions to review at one time.
When Should You Reconcile Your Bank Account?
Many businesses reconcile their bank accounts monthly, often after receiving their monthly bank statement. Businesses with frequent transactions may benefit from reconciling more often.
The right frequency depends on transaction volume, business size, and internal bookkeeping procedures.
More frequent bank reconciliation can provide better visibility into cash flow and help identify errors sooner.
Final Thoughts on Bank Reconciliation Discrepancies
Bank reconciliation discrepancies are a normal part of bookkeeping, but they should not be ignored. A difference between your bank statement and accounting records can result from a simple data-entry mistake, missing transaction, duplicate entry, timing difference, bank fee, or potentially unauthorised activity.
The key is to investigate each discrepancy systematically. Start by checking opening balances and dates, then match individual transactions and investigate anything that remains outstanding. Once the cause is identified, make the appropriate correction and retain supporting documentation.
By making bank reconciliation a regular part of your bookkeeping process, you can maintain more accurate accounting records, improve financial visibility, and reduce the risk of small errors becoming larger problems.
