This article explains how to reconcile your bank balances so that the balance in your bank account matches the bank balance in FreeAgent.
If you enable a bank feed, or upload bank transactions regularly, and then explain your transactions, your bank balance in FreeAgent should match the amount in your bank account. FreeAgent's ‘Balance at bank’ feature can help you check whether these balances match.
The Bank Reconciliation report is designed to aid with the bank reconciliation process of checking that the balance on your bank statement matches the bank balance in your accounts. When the two figures match, you have reconciled your bank account. If the two figures don't match, your bank account is unreconciled.
Understanding your bank balance in FreeAgent
The bank balance of a particular bank account in FreeAgent is calculated by taking the opening balance that you entered when creating the bank account in FreeAgent and then adding and subtracting the transactions that have come into and out of the bank account. This means that the balance showing in FreeAgent may not reflect the real-time balance in your bank account. Instead, it reflects the total of the transactions within FreeAgent as of your last successful upload or bank feed import.
There are a few additional reasons why your bank balance in FreeAgent may not reconcile correctly with the balance of your actual bank account. The following steps should help you identify the cause(s) of the mismatch and correct them. Please note that more than one of the following factors may be affecting your bank balances.
Check that your opening balance is correct
Ensuring that the opening bank balance as of your FreeAgent start date is correct is the first step towards reconciling your bank balance. For bank feeds enabled on or after 30th September 2022 with a supported bank, FreeAgent’s ‘Balance at Bank’ feature will automatically populate your opening bank balance.
To check whether the opening bank balance you entered for your FreeAgent start date is correct, navigate to the ‘Banking’ drop-down menu and select ‘Bank Accounts’.
Choose the relevant bank account from the list and then select ‘Edit Details’ in the top-right corner.
To edit the opening balance for the account, scroll down to the ‘Opening Balance’ section. Once you have changed the opening balance, select 'Save changes'.
Remove transactions dated before your FreeAgent start date
Your FreeAgent start date is the date you start using FreeAgent to keep your business books. This date may vary depending on whether your business is new or existing, but it’s important to note that any transactions dated before your start date should not be included in your bank account in FreeAgent.
If you have entered any transactions dated before your FreeAgent start date, you will need to either remove them and enter them as opening balances instead, or update your FreeAgent start date to the correct date. If you change your FreeAgent start date, you will also need to update your opening bank balance.
Check that all of your bank transactions are included in FreeAgent
Ensure that all the bank transactions from your FreeAgent start date onwards are included in your FreeAgent bank account. If any transactions are missing, either upload or add them manually.
It’s also important to check that there aren’t any duplicate transactions appearing in FreeAgent. For example, if you have created a manual transaction in your bank account in FreeAgent and then it has been imported automatically via your bank feed or you have uploaded a bank statement that includes that transaction, you may need to match the two together.
Check for any uncleared or pending transactions in your actual bank account
If there are any uncleared or pending transactions included in the balance of your actual bank account, these won’t be included in the balance in your FreeAgent bank account yet. Once they have been cleared by your bank, they will appear in your FreeAgent account.
Identify when your bank balances last reconciled
Identifying when your bank balances last reconciled can help you narrow down what’s causing them to mismatch. To do this, check the balance in FreeAgent and your bank account at the end of each month. Once you have identified the first month when the balances differ, work back from the end of that month to identify any inaccuracies between the two accounts.
For example, correct any transactions that do not match your bank statement by deleting duplicates, or add in any missing transactions either manually or by uploading a statement if there are more than a few transactions to add.
How to resolve bank balance discrepancies using journal entries and manual bank transactions
It’s best practice to reconcile your bank account in FreeAgent with your actual bank balance. However, if you encounter errors or differences between the accounts going back over two years, an alternative is to speak to your accountant about creating journal entries. For example, your accountant could create journal entries to a category such as 998 (Contra Account) or 907 (Directors Loan Account) and then create manual transactions inside the bank account to match off against these balances.