How to Do a Bank Reconciliation: Step-By-Step 2023

Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Keeping accurate records of your bank transactions can help you determine your financial health and avoid costly fees. Using this simple process each month will help you uncover any differences between your records and what shows up on your bank statement. ABC Co. can start from the adjusted bank book balance and adjust the timing differences to it to reach the bank statement balance. It can also adjust the balances to the bank statement to reach the adjusted bank book balances instead. First of all, compare the records in the company’s bank statement and ledger cash account.

  • If you’ve fallen behind on your bookkeeping, use our catch up bookkeeping guide to get back on track (or hire us to do your catch up bookkeeping for you).
  • It is up to you, the customer, to reconcile the cash book with the bank statement and report any errors to the bank.
  • Most business accounts are set up to run monthly, though some older accounts may have a mid-month end date.
  • In addition to this, the interest or dividends earned on investments is directly deposited into your bank account after a specific period of time.
  • The purpose of the bank reconciliation is to be certain that the company’s general ledger Cash account is complete and accurate.

The bank balance showcased in the passbook or the bank statement must match the balance reflected in the cash book of the customer. It is up to you, the customer, to reconcile the cash book with the bank statement and report any errors to the bank. There could be transactions unaccounted for in your personal financial records because of a bank adjustment.

How to Do Bank Reconciliation?

You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided. You’ll need to figure out if it was a sale, interest, a refund, or something else. However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors. In today’s world, transactions (whether receipts or payments) are done via a bank.

  • Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible.
  • For example, if a check is altered, the payment made for that check will be larger than you anticipate.
  • After recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month.

One important trait of the bank reconciliation is that it identifies transactions that have not been recorded by the company that are supposed to be recorded. Journal entries are required to adjust the book balance to the correct balance. After you’ve checked all the deposits and withdrawals, your business bank balance should match the totals in your business accounts. You could get that from a statement, from online banking, or by having the bank send data straight to your accounting software. If you run a current account and a credit card account, you’ll need both statements. If you’re interested in automating the bank reconciliation process, be sure to check out some accounting software options.

Step 4: Find G/L adjustments

These are mainly outstanding cheques and transfers done closer to the end of the month but is yet to be processed by the bank. Since the adjusted balance for both the bank book and bank statement is $400, it means there are no extra items that need to be reconciled. There are no unrecorded Receipts (Cr.) but if they did exist, they would be debited to the bank book. The other side of the entries will be taken to their relevant accounts, for instance, bank charges account. It must ensure that the bank book balance is taken for the last date of the previous month or the month for which the bank statement is considered. Mostly, errors occur in the bank book of the business rather than the bank statements.

Bank Reconciliations: Everything You Need to Know

This process helps you monitor all of the cash inflows and outflows in your bank account. The reconciliation process also helps you identify fraud and other unauthorized cash transactions. As a result, it is critical for you to reconcile your bank account within a few days of receiving your bank statement. A bank reconciliation should be prepared periodically because it is an important part of the internal controls of a company. Usually, most companies prepare bank reconciliations at the end of each month. That is because they receive bank statements at the end of each month.

The entry might be saved as an added amount and causes an error in the company’s ledger. If multiple people are involved in the reconciliation process, make sure they are trained and understand the importance of accuracy and compliance with internal procedures. If they are still not equal, you may have made an error or left out a transaction and the reconciliation process will need to be repeated again. Adjust the general ledger by deducting all bank charges incurred during the month.

How To Do a Bank Reconciliation

Until then, your balance as per the cash book would differ from the balance as per the passbook. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook. Therefore, it makes sense to first record these items in the cash book to determine the adjusted balance of the cash book. If you want to prepare a bank reconciliation statement using either of these approaches, you can take balance as per the cash book or balance as per the passbook as your starting point. In addition to ensuring correct cash records, the bank reconciliation process also helps in keeping track of the occurrence of any form of fraud. Such insights would help you as a business to control cash receipts and payments in a better way.

This may occur if you were subject to any fees, like a monthly maintenance fee or overdraft fee. For interest-bearing accounts, a bank adjustment could be the amount of interest you earned over the statement period. Preparing a bank reconciliation requires a company to take a step by step approach. The easiest step by step approach to preparing bank reconciliation is through a 5-step process. If a company has more than one bank accounts, it will need to carry out the process for each account separately. But there is no harm in double-checking the bank statements with ledgers.

Or there may be a delay when transferring money from one account to another. Or you could have written a NSF check (not sufficient funds) and recorded the amount normally in your books, without realizing there wasn’t insufficient balance and the check bounced. If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the mail today, I promise!

Companies should safeguard their checking accounts through internal controls, which includes timely bank reconciliations prepared by an independent person. The bank reconciliation is an internal document prepared by federal income the company that owns the checking account. The cash account balance in an entity’s financial records may also require adjusting in some specific circumstances, if you find discrepancies with the bank statement.

Obtaining both bank statement and bank book balances

Bank reconciliation is undertaken in order to ensure that your balance as per the bank statement is correct. All of this can be done by using online accounting software like QuickBooks. In case you are not using accounting software, you can use Excel to record such items. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account.

The preparation of a bank reconciliation is the most efficient process of ensuring that a company’s cash is being accounted for accurately. Once it is established that the bank reconciliation statement should be made, it is then important to identify the type of differences that exist between the bank book and the bank statement. Once the balances are compared, if no differences exist, the bank reconciliation statement is not prepared.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top