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Explaining your bank transactions and reconciliation

Matching your transactions to your bank statements

Bank reconciliation (also known as bank rec) is the process of ensuring that the transactions in your business account correlate to transactions recorded in your Freeagent account. In other words, it’s matching up your accounts so they contain the same information. Doing this is an absolute must if you wish to keep excellent accounting records.

 

If you don’t reconcile, your accounts will become inaccurate. Not the end of the world right? Wrong.  If your accounts provide misleading figures then it can lead to some hefty complications down the road. You also won’t be able to do essential things such as submit your VAT Return, which could result in you being fined.


Setting it up

 

Reconciliation is a straightforward process - most high street banks will be able to provide you with a .CSV file that you can upload directly into your account.

 

If you’re unable to get hold of .CSV files, don’t worry - you’re able to import other files types such as;  .OFX (Open Financial Exchange), .QIF (Quicken Interchange Format), which is an older format.

 

Once you have your bank statement downloaded in an electronic format, you can then upload these into your account.

 

To do this head to the Banking tab where you can select Upload a Bank Statement.

 

 

Note: If you’re having problems importing your statements, check out the troubleshooting tips on Freeagent’s Knowledge Base.


How do I go about it?

 

You can actually make it really easy on yourself by using the Guess Transactions feature. This allows the software to take an educated guess and match up your transactions to what you’ve already recorded in the account. You can always edit these transactions in the rare case there’s mistake. We couldn’t recommend this feature enough - it cuts out a load of admin time to make your bank reconciliation upkeep a breeze.

 

What if I want to do it manually?

 

You can manually create transactions throughout the month and then match these to your bank statement when you uploaded it. This takes longer than allowing the software to guess your transactions, but affords you more control.

 

To match a manual bank transaction to your statement - locate the transaction highlighted in red, then select More Options - Edit a Transaction. the system will then try to locate the transaction already recorded. Once found, simply select Use Selected Entry to combine the items. Pretty easy right?

 

 

Explaining transactions

 

It’s worth noting that some transactions can’t be automatically matched, which means you’ll have to explain these items. This is so that you can define all the money coming in and out of the bank account.

 

To do this, first select the transaction in question. This will expose the explanation options - Type, Category and Description.


We recommend adding as much detail as possible in case you need to refer back to a transaction or we later need further clarification when we’re filing a VAT Return or completing your Self Assessment for you - it’s all good practice in case HMRC need further information about your expenditure.

 

Another great feature is being able to select similar items and explain them all in 1 go - just remember to give them solid descriptions.

 

The software will even start to learn your transactional habits so the next time you go to upload a new statement, we recommend trying the Guess Transactions feature.


Upkeeping your accounts

 

We highly recommend that you reconcile once a month.

 

Trust us, there’s nothing worse than having to spend ages getting your bank reconciliation up to date because you didn’t bother with it for 6 months previous. It can also greatly heighten the likelihood of accounting complications which could be costly for you.

 

If you make a habit of spending a small amount of time each month ensuring your bank rec is up to date, then it never has to be a chore!




 
Last Updated: 01 Apr 2016 03:40PM BST

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