What is bank reconciliation?

In practice, in the UK

A reconciled bank account is one of the more reliable signals that a set of accounts can be trusted, since almost every transaction in a business eventually touches the bank, and an unreconciled account means errors elsewhere in the ledger have nowhere obvious to be caught. Differences are not automatically errors: timing differences, such as a cheque issued but not yet cleared, are a normal and expected part of reconciliation, while a transaction on the bank statement with nothing matching it in the ledger at all is the kind of gap that needs investigating rather than dismissing. Since Making Tax Digital increasingly assumes bank data flows into the accounting system digitally rather than being keyed in from a paper statement, an unreconciled or manually re-entered bank account is as much a digital-links question now as it is a bookkeeping one.

In Odoo

Odoo can import bank statements directly, or connect to many UK banks for a live feed, and match transactions against invoices, bills and existing ledger entries automatically in most routine cases. What still needs a human eye is anything the automatic matching cannot resolve on its own — a payment covering several invoices, a refund, an unexplained transaction — since accepting a suggested match without checking it defeats the purpose of reconciling in the first place.

Common mistakes

• Accepting an automatic bank match without checking it against the actual transaction it claims to explain.
• Leaving reconciliation for month end or year end instead of doing it as statements become available.
• Treating every unmatched item as an error to force through, rather than investigating what it actually represents.