Friday, February 23, 2024

How would you reconcile your bank account to avoid spending more than you have?

1. Collect your records

Collect all relevant financial documents reflecting transactions in your bank account, including checks, deposit slips, electronic transfers, purchase orders and receipts. Compare your own spending records with the transactions in your bank account.

Learn more: How to upload receipts using Email and SMS

2. Check the opening balances

Before reconciliation, ensure that the opening balance of your bank account matches the opening balance on your accounting software, such as Xero or QuickBooks.

3. Reconcile and match transactions

Compare each transaction on your bank account and accounting software with your financial document. Ensure all transactions are accurate and up-to-date, and attach your record (Eg: checks, deposit slips, purchase orders and receipts) to each transaction.

Learn more:
What does reconcile mean?
How to reconcile in Xero?
How to reconcile in QuickBooks online?

4. Identify Discrepancies

Look for any discrepancies between the two records. This could include transactions that appear in one record but not the other, or differences in transaction amounts.

* If you spot any mistakes, call the vendor with the phone number Receipt-AI extracts from your receipt.

5. Account for Interest and Fees

Add any interest earned and subtract any bank fees that might not have been recorded in your own records.

6. Outstanding transactions

Identify any checks or debits that you have recorded that have not yet cleared the bank. These are known as outstanding transactions.

Cleared the bank means that the bank has processed a transaction and the funds have been moved either into or out of your account. Until a transaction has cleared, it is considered "outstanding" or "pending" and will not be reflected in your available balance.

7. Calculate the Adjusted Balance

After accounting for outstanding items and any adjustments for errors, calculate what your true available balance should be.

8. Repeat Regularly

Perform this reconciliation process regularly, such as at the end of each month when you receive your bank statement, to keep a real-time understanding of your available funds.

9. Monitor Your Balance

Keep an eye on your balance as you make transactions to ensure you’re not spending money that has not yet cleared or that you have pending transactions that may soon decrease your balance.

It is a good practice to reconcile your bank account regularly. By doing so, you can maintain an accurate picture of your finances, which helps prevent overdrawing your account and incurring fees. It also helps better budget management and financial planning.