Reconciling bank accounts – the many hours of fun I have had in my career

June 22, 2012

When we prepare a fixed price agreement for a potential client we are usually able to give them a quote in the meeting after asking 3 questions.  The questions are:

1) What is your turnover?
2) What is the quality of your accounting records?
3) What services do you need?

On the quality of accounting records, the one thing that catches many smaller limited companies out, is the bank reconciliation.

When a business is a self employed individual, the accounting is fairly straight forward.  You have to add up all your income, add up all your expenses, deduct the expenses from the income and hey presto, you have profits which is then taxed on.  No balance sheet, no need to look at bank statements – that’s it.

When a business is a limited company, very different.  You still have to add up all the income and expenses but the bank account becomes crucial.  As a limited company, you have to have a separate company bank account.  Therefore the business itself owns a company bank account (unlike a self employed individual who is using an account to run his self employment through) and the business owner has to account for everything that goes through that bank account.

So not only do you do the adding up part – of the income and expenses – you then have to go through the entire bank account and tick off the items that you already have included AND anything that has gone through the bank account.  Absolutely EVERYTHING has to be accounted for.

Reconciling a bank account can be fairly time-consuming even for smaller businesses (especially smaller business with many transactions) so we always give the client an option of whether they want to do it or whether they want us to do it.  Unfortunately, just adding up income and expenses isn’t ‘completing the books’ for a limited company, only by completing the bank reconciliation are you able to say that you accounted for everything in the bank.

*Footnote  Many years ago, I once spent 3 weeks reconciling a bank account including coming back from a night out and spending the hours of 11pm to 8am trying to complete it only to be unable to balance it and nearly killing my colleague in a fit of insomanical accountancy rage.


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