Quick answer: Reconciling your accounts means checking that every transaction in your bookkeeping software matches your actual bank statements, and that every transaction is correctly categorised. Doing this before each quarterly submission, not just once a year, catches missing transactions and miscategorisations while they’re still easy to fix.
Reconciliation sounds like an accountant’s word for a simple idea: make sure what your software says matches what actually happened in your bank account. Under MTD, doing this every quarter rather than once a year is what keeps the process painless.
What reconciliation actually checks
- That every transaction on your bank statement appears in your bookkeeping records, nothing missing.
- That every transaction in your records is correctly categorised as income, an allowable expense, or excluded from the calculation entirely.
- That your software’s running balance matches your actual bank balance for the period.
A simple quarterly process
- Compare your software’s transaction list against your bank statement for the quarter, line by line if it’s a manageable volume, or spot-checking a sample if it’s high volume.
- Review any transactions flagged as uncategorised or low-confidence by your software; see can AI bookkeeping make mistakes for what to look for specifically.
- Check for any accounts that might not be connected to your software, a secondary card, a savings account occasionally used for business, and add anything missing.
- Confirm your software’s calculated total for the quarter looks broadly sensible against what you’d expect, a rough sanity check before submitting.
Why quarterly reconciliation beats annual
Catching a miscategorised transaction three months after it happened is far easier than trying to remember the context of something from eleven months ago. It also means any errors are corrected in the next quarter’s cumulative figures naturally, rather than accumulating into a bigger problem by your Final Declaration. See how to correct or amend a quarterly update for how that correction actually works.
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