Bank Reconciliation: Purpose, Example, Process

Once accounting errors are identified, proceed to make the necessary adjustments in your records. Correct any misstated figures or misclassified entries to ensure the accuracy of your financial information. Once the necessary documents are gathered, the next step is to compare the beginning balances between the bank statement and your company’s accounting statements. The starting point is crucial for identifying any discrepancies that may have arisen since the last reconciliation.

Record Adjustments:

This could involve correcting errors, adding missing transactions, or addressing outstanding items. Record the reconciled transactions, adjustments, and corrections made during the reconciliation process. Ensure that all changes are accurately reflected, including updated balances, corrected entries, and any newly discovered transactions. One is making a note in your cash book (faster to do, but less detailed), and the other retained earnings is to prepare a bank reconciliation statement (takes longer, but more detailed).

Discover Our Full Range of Services

At times, the balance as per the cash book and passbook may differ due to an error committed by either the bank or an error in the cash book of your company. At times, your customers may directly deposit funds into your business’ bank account, but your business will not notified about this the bank statement is received. The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account. Once solved, be sure to adjust your records to reflect deposits as needed. Book transactions are transactions that have been recorded on your books but haven’t cleared the bank.

• The frequency of reconciling bank statements depends on the size and complexity of the business and its transaction volume.
• Business owners regularly compare their records with bank transactions to ensure there are no errors.
• A bank may charge an account maintenance fee, typically withdrawn and processed automatically from the bank account.
• The items therein should be compared to the new bank statement to check if these have since been cleared.
• As a result, it is critical for you to reconcile your bank account within a few days of receiving your bank statement.
• Bank reconciliation statements are often used to catch simple errors, duplications, and accidental discrepancies.

Failing to record all transactions:

• Not recording all transactions in the accounting system can lead to discrepancies between the balance sheet and the bank statement, making it difficult to reconcile.
• Ideally, you should run a reconciliation each time you receive the statement from your bank.
• This step ensures you account for funds that have been disbursed but haven’t been reflected in the bank statement.
• These cheques are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment.
• Match the deposits in the business records with those in the bank statement.
• Hence, at the end of each month, the first thing to do is to consult the bank reconciliation statement prepared at the end of the previous month.
• Yet, the process has its own complexities, making it difficult for businesses.

In addition, there may be cases where the bank has not cleared the checks, however, the checks have been deposited by your business. Banks take time in clearing checks, so the bank needs to add back the check’s amount to the bank balance. As a result of these direct payments made by the bank on your behalf, the balance as per the passbook would be less than the balance as per the cash book. It is important to note that it takes a few days for the bank to clear the checks.

Automating bank reconciliation can bring numerous benefits to a business, including increased accuracy, productivity, and cost savings. By using software tools to automate bank reconciliation, businesses can focus on other critical tasks and make informed business decisions based on accurate financial data. By avoiding these common errors, you can ensure the accuracy of your organization’s financial records, make informed business decisions, and reduce the risk of financial issues. Regular reconciliation and review of financial records can help identify and resolve errors promptly, reducing the risk of financial issues. Discrepancies between the balance sheet and the bank statement must be identified and resolved promptly.

How Frequently Should You Reconcile Your Bank Account?

It’s possible that a banking error has occurred or that you have been charged for something you were unaware of. If the charges are not from your bank, the bank can also help you identify the https://www.bookstime.com/personal-bookkeeping source so that you can prevent any fraud or theft risk. Greg’s January financial statement for the company shows $100,000 in cash, but the bank statement shows only $88,000.

Using cloud accounting software, like Quickbooks, makes preparing a reconciliation statement easy. Because your bank account gets integrated with your online accounting software, all your bank transactions will get updated automatically and each item will be matched with your books of accounts. Taking the time to perform a bank reconciliation can help you manage your finances and keep accurate records. This relatively straightforward and quick process provides a clear picture of your financial health. Consider reconciling your bank account monthly, whether you set aside a specific day each month or do it as your statements arrive. A company, ABC Co., receives a bank statement from one of its banks stating the balance in the bank account to be $2,650.

• After fee and interest adjustments are made, the book balance should equal the ending balance of the bank account.
• Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions.
• This process involves comparing and reconciling the balances of the bank statement with the internal accounting records.
• As a result, the balance shown in the bank passbook would be more than the balance shown in your company’s cash book.
• Reconciling the two accounts helps identify whether accounting changes are needed.

Reasons for Difference Between Bank Statement and Company’s Accounting Record

Such information is not available to your business immediately, so you record no entry in the business’ cash book for the above items. You will know about this only when you receive the bank statement at the end of the month. As a result, your balance as per the passbook would be less than the balance as per the cash book. When your business receives checks bank reconciliation from its customers, these amounts are recorded immediately on the debit side of the cash book so the balance as per the cash book increases.

Bank reconciliation is the process of comparing accounting records to a bank statement to identify differences and make adjustments or corrections. In the case of personal bank accounts, like checking accounts, this is the process of comparing your monthly bank statement against your personal records to make sure they match. Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee.