What Is a Bank Reconciliation Statement, and How Is It Done?

If you can easily account for these discrepancies, there’s probably no need to worry – the bank will respond and fix the issue in a timely manner. Want to learn which method is best to use, depending on your business’ size, industry, and long-term financial goals? With that information, you can now adjust both the balance from your bank and the balance from your books so that each reflects how much money you actually have.

If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. Ensure that you take into account all the deposits as well as the withdrawals posted to an account in order to prepare the bank reconciliation statement. This is done by taking into account all the transactions that have occurred until the date preceding the day on which the bank reconciliation statement is prepared. When your business receives cheques from its customers, such amounts are recorded immediately on the debit side of the cash book.

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In the first instance, you aren’t responsible for any transactions you didn’t authorize as long as you report them within 60 calendar days after your statement was sent to you. You can even manage your entire bank reconciliation and bookkeeping from your phone, by simply downloading the Deskera mobile app. With the Deskera Books platform, you’re able to make comparisons between the company’s sales and purchases and your bank record within seconds, without having to lift a finger. If you want to learn how to prevent unrecoverable and defective payments and create an allowance for these doubtful accounts, check out our guide on bad debt expenses. HighRadius’ Account Reconciliation software helps you leverage an out-of-the-box matching rule system, and analyze large volumes of data with accuracy, thereby reducing reporting errors. We’re going to look at what bank statement reconciliation is, how it works, when you need to do it, and the best way to manage the task.

  • The goal of bank account reconciliation is to ensure your records align with the bank’s records.
  • If there’s a discrepancy between your accounts and the bank’s records that you can’t explain any other way, it may be time to speak to someone at the bank.
  • The rules vary depending on whether the thief used just your account number or your physical ATM or debit card.
  • When you’re done, you’ll see a difference of zero, meaning the accounts match.
  • When the bank statement and internal records match, keeping track of payments and fixing any mistakes is easier.
  • Updating the records means making necessary changes in the accounting system to match what was reconciled.

For example, your bank statement shows that your ending balance is $11,450, while your G/L balance according to your trial balance is $10,850. Imagine making decisions based on numbers that may or may not be accurate! In business, bank reconciliations are your knight in shining armor that protects against such situations.

Taking payment by direct debit has many benefits for accountants, including being able to pull regular… Managing cash flow is crucial for any business, regardless of size or industry. Therefore, you need to deduct the amount of these cheques from your bank balance. Such 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.

Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly. You only need to reconcile bank statements if you use the accrual method of accounting. This is to confirm that all uncleared bank transactions you recorded actually went through. When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy.

A bank reconciliation statement is a statement prepared by the entity as part of the reconciliation process’ which sets out the entries which have caused the difference between the two balances. It would, for example, list outstanding cheques (ie., issued cheques that have still not been presented at the bank for payment). Bank statements are commonly routinely produced by the financial institution and used by account holders to perform their bank reconciliations. As mentioned above, the process of comparing your cash book details with the records of your business’ bank transactions as recorded by the bank is known as bank reconciliation.

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Below is a video explanation of the bank reconciliation concept and procedure, as well as an example to help you have a better grasp of the calculation of cash balance. Deposits in transit are amounts that are received and recorded by the business but are not yet recorded by the bank. Businesses maintain a cash book to record both bank transactions as well as cash transactions. The cash column in the cash book shows the available cash while the bank column shows the cash at the bank. Or maybe you scheduled a rent payment and listed it in your chart of accounts as usual, but the notification that your payment bounced went to your spam folder. As a result, you didn’t notice the payment actually bounced until your end-of-the-month bank reconciliation.

These adjustments help you know how much money you really have in your accounts. It’s important for managing your money and keeping your financial records right. Bank service charges are fees the bank charges for various services they provide, such as monthly maintenance or overdraft fees.

Bank Reconciliation (Explanation)

Thus, such a situation leads to the difference between bank balance as per the cash book and balance as per the passbook. When you compare the balance of your cash book with the balance showcased by your bank passbook, there is often a difference. Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement. After adjusting all the above items, what you get is the adjusted balance as per the cash book.

How to Do Bank Reconciliations Step by Step

Whether this is a smart decision depends on the volume of transactions and your level of patience. 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! Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid). Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled.

In such a case, you simply need to mention a note indicating the reasons for the discrepancy between your bank statement and cash book. 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.

But, if there’s a mismatch, say your records show $5000 while the bank statement indicates $5500, the account is unreconciled, and you must identify the error and correct it. Regularly reconciling keeps your cash records accurate and can also detect any fraud or money manipulation activities. Companies need to reconcile their accounts to prevent balance sheet errors, check for possible fraud, and avoid adverse opinions from auditors.

Thus, such debits made by the bank directly from your bank account lead to a difference between the balance as per cash book and the balance as per the passbook. 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. NSF cheques are an item to be reconciled while preparing the bank reconciliation statement. This is because when you deposit a cheque in your bank account, you consider that the cheque has been cleared by the bank.

This statement is used by auditors to perform the company’s year-end auditing. It is recommended to reconcile your company’s bank account at least bank draft definition every month. However, more frequent reconciliations may be necessary depending on the volume of transactions and the complexity of your finances.

What Is a Bank Reconciliation Statement?

There are times when the bank may charge a fee for maintaining your account. Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account. To reconcile your bank statement with your cash book, you need to ensure that the cash book is complete. Further, make sure that the bank’s statement for the current month has also been obtained from the bank.



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