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

The company prepares the bank book while its bank prepares the bank statements. At the end of the period, there are going to be differences between the balances in both the documents. To reconcile the differences in both balances, the company must prepare a bank reconciliation statement.

1. This process helps you monitor all of the cash inflows and outflows in your bank account.
2. Banks provide various services to their users with applicable service charges.
3. Financial statements show the health of a company or entity for a specific period or point in time.
4. It also missed two $25 fees for service charges and non-sufficient funds (NSF) checks during the month.

Companies generally perform balance sheet reconciliations each month, after the books are closed for the prior month. This type of account reconciliation involves reviewing all balance sheet accounts to make sure that transactions were appropriately booked into the correct general ledger account. It may be necessary to adjust some journal entries if they were booked incorrectly. Business owners regularly compare their records with bank transactions to ensure there are no errors.

Obtaining both bank statement and bank book balances

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.

An accountant prepares the reconciliation statement once a month. The bank statement itemizes a company’s list of cash and other deposits made into the checking account of the business. 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 https://www.quick-bookkeeping.net/ month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid). With HighRadius, you can improve your bank reconciliation process, optimize your cash flow management, and reduce the risk of errors and discrepancies. Try HighRadius’ advanced features today and see how they can help you take your financial operations to the next level.

Such errors are committed while recording the transactions in the cash book. As a result, the balance as per the cash book differs from the passbook. At times, the balance as per the cash book and passbook may differ due to an error committed by either bank or an error in the cash book of your company. For instance, the bank charged your business $30 in service fees, but it also paid you $5 in interest.

Bank reconciliation statement:

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 statement reconciles the bank statement with the company’s accounts. A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement.

This is probably the most important step in the entire bank reconciliation process. Most business owners receive a bank statement, either online or in the mail, at the end of the month. Most business accounts are set up to run monthly, though some older accounts may have a mid-month end date.

Add bank-only transactions to your book balance

As a part of this process, you might require to prepare some journal entries to correct errors. These errors are those which interrupt during bank statement and general ledger comparison. Bank Example 2 showed that the bank debits the depositor’s checking account to decrease the checking account balance (since this is part of the bank’s liability Customers’ Deposits). When a company writes a check, the company’s general ledger Cash account is credited (and another account is debited) using the date of the check. For example, a restaurant or a busy retail store both process a lot of transactions and take in a lot of cash.

It’s the duty of any business, large or small, to keep accurate financial records to ensure things balance. Reconciling your bank statements won’t stop fraud, but it will let you know when it’s happened. Auto-reconciling transactions reduces human errors such as keying inaccuracies and adds security to the reconciliation process. Cash management software allows businesses to gather real-time cash positions across the organization, helping to make better business decisions based on accurate data. Keeping track of the entire reconciliation process is crucial for reporting errors and corrections to the management team later. Documentation also helps non-reconciliation employees cross-check data and refer back to source documents.

But there is no harm in double-checking the bank statements with ledgers. The bank prepares a bank statement including cash deposits and withdrawals for a month. Whereas, accounting record book records the same entries by the hands of the accountant. A bank reconciliation statement is a summary of business activity that reconciles financial details. It ensures that payments have been processed and money has been deposited on the same date.

Preparing a bank reconciliation requires a company to take a step by step approach. The easiest step by step approach to preparing bank reconciliation https://www.kelleysbookkeeping.com/ 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.

Unexplained or mysterious discrepancies, however, may warn of fraud or cooking the books. Businesses and individuals may reconcile their records daily, monthly, quarterly, or annually. https://www.online-accounting.net/ Miscellaneous debit and credit entries in the bank statements must be recorded on the balance sheet. If there are any differences, adjust the balance sheet to reflect all transactions.

Compare the cash account’s general ledger to the bank statement to spot the errors. 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. Contact your bank to investigate further and find where the issue lies. Once solved, be sure to adjust your records to reflect deposits as needed.

Here, records such as receipts or canceled checks are simply compared with the entries in the general ledger, in a manner similar to personal accounting reconciliations. It’s also possible to make a double-entry journal entry that affects the balance sheet only. Reconciliation makes the bank statement error-free and clears additional charges. Therefore, before closing the accounting chapter in the banking book, reconciliation checks whether the closing page hits green light i.e. ending is correct and safe.

Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. HighRadius offers autonomous cash management software that helps businesses optimize cash flow management and reduce reconciliation delays. With HighRadius, you can enjoy continuous global cash visibility, updated balances by entity, bank, and currency, and rolling short-term cash position keeping. Recording transactions on the general ledger or subledger as soon as they occur helps reduce errors and makes the reconciliation process more manageable. Check deposits can be challenging for businesses during reconciliation.

Failure to do so can lead to further errors and make it challenging to reconcile the accounts. After checking all the critical items, adjust the cash balances to account for all expenses and transactions. Next, prepare the business records, which can be maintained on a software tool or manually on a spreadsheet.