Why your bank balance doesn't match your software

Why the difference matters

Your accounting software should show the same bank balance as your bank statement on any given date. When it does not, something has gone wrong in the records. That can mean income or costs are missing or counted twice, which feeds straight into your profit, your VAT returns and, before long, your tax bill.

The good news is that most differences come from a small number of causes. Working through them in order usually finds the problem.

First, compare like with like

Before hunting for errors, make sure you are comparing the right numbers. Many packages show two figures: the balance from the bank feed and the balance in your books. The bank feed figure may be updated at a different time from the transactions you have recorded. Pick a statement date, such as the last day of a month, and compare the closing balance on the bank statement with the balance on the software's bank reconciliation or balance sheet report at that same date.

The most common causes

1. Duplicate transactions

Duplicates are the most frequent culprit. They happen when a bank feed reconnects and re-imports transactions, when a statement is uploaded manually as well as coming through the feed, or when a payment is entered by hand and then matched to a different bank line. Search for transactions with the same date and amount. Our guide to fixing duplicate transactions covers this in more detail.

2. Gaps in the bank feed

Bank feeds can stop working when authorisation expires or the bank changes something. If transactions for a few days or weeks are missing, the balance will be out by the net amount of those days. Check the dates of the last imported transactions and look for unexplained gaps. Our team can help with bank feed problems if the feed will not reconnect.

3. Wrong opening balance

If the opening balance entered when the software was set up was wrong, every later balance will be wrong by the same amount. This often happens when a business moves from spreadsheets or another package and the conversion date balances are not checked. A constant difference that never changes month to month is a strong clue. See our page on opening balance corrections.

4. Transactions reconciled incorrectly

In FreeAgent, QuickBooks and Xero, it is easy to match a bank line to the wrong invoice or bill, or to mark something as reconciled without it being recorded properly. Deleted or edited transactions that had already been reconciled can also leave the books out of line with the bank.

5. Payments recorded in the wrong account

Businesses with more than one bank account, a credit card or a PayPal or Stripe account can easily post a transaction to the wrong one. The total across all accounts may be right while each individual account is wrong.

6. Timing differences

Some differences are legitimate. A cheque you have written may not have cleared, or card payments may take a day or two to settle. These should be listed as unreconciled items and should clear in the following period. If the same items sit there for months, they are probably errors.

A step-by-step approach

1. Work out the difference at a month end where you have a bank statement.
2. Check whether the difference is the same at earlier month ends. If it is, the problem is older. If it changes, the problem is in the months where it changes.
3. Look for a single transaction equal to the difference, or double it (a payment posted as a receipt shows up as twice the amount).
4. Check the bank feed for gaps or duplicate imports in the months concerned.
5. Run the software's reconciliation report and review any unusual items.
6. Once the balance agrees, lock the period if your software allows it, so it cannot change again.

When the problem is bigger than the bank

If the difference goes back over several years, or the bank account has never been reconciled, fixing it may affect accounts and VAT returns that have already been filed. In that case the corrections need careful handling, and it may be appropriate to tell HMRC about errors on past VAT returns. That is a job for proper journals and a clear audit trail rather than a single balancing figure.

Some issues are technical faults in the software itself, such as a feed connection failing repeatedly on the provider's side. Those need to go to the software provider's support team. We focus on the accounting records.

Keeping it right

Reconciling weekly or monthly keeps problems small. Avoid uploading statements manually when a feed is active, and do not delete reconciled transactions without understanding why they were there. If several people use the software, agree who reconciles each account.

How we can help

Our bank reconciliation problems service finds and fixes differences in FreeAgent, QuickBooks, Xero and Sage. We access your books through the software's accountant invitation and never ask for your password. We can also help with FreeAgent, QuickBooks and Xero more generally, from setup to training.

We support businesses across Kent and the UK. Send us a message with the size of the difference and the period it covers, and we will suggest the best place to start.