A Guide to Everything You Need to Know About Bank Reconciliations

Begin by carefully reviewing the bank statement for The Tackle Shop found below. Information found on that spreadsheet would correlate precisely to activity in the company’s Cash account within the general ledger. Partners or financiers may require bank reconciliation statements as part of the funding process, and they are helpful in the case of an audit.

• Common errors include entering an incorrect amount or omitting an amount from the bank statement.
• A bank reconciliation statement can help you identify differences between your company’s bank and book balances.
• Bank reconciliations are typically performed at the end of the month, after the transactions have already been recorded.
• Introducing automation into your reconciliation process will eliminate hours of  unnecessary work and help the process be free of human error.
• Reconciliation is typically done at regular intervals, such as monthly or quarterly, as part of normal accounting procedures.

The final step in the bank reconciliation process is to record journal entries to complete the balancing process. It’s common for your bank statement to have a higher ending balance than your G/L account shows. While it may be tempting to assume you have more money in the bank than you think, it’s a safe bet that the difference is checks and other payments made that have not yet hit the bank. Also illegal is “kiting” which occurs when one opens numerous bank accounts at various locations and then proceeds to write checks on one account and deposit them to another. In turn, checks are written on that account, and deposited to yet another bank.

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

These features, along with our platform’s flexibility, mold to your accounting lifecycle for a truly streamlined reconciliation. F&A leadership can have a significant impact by creating sustainable, scalable processes that can support the business before, during, and long after the IPO. This company-wide effort crosses multiple functional areas and is reinforced by critical project management and a strong technology infrastructure.

• Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account.
• A Bank Statement Reconciliation is the process where you confirm your financial records align with those of your bank.
• The very purpose of reconciling bank statements with your business's cash book is to ensure that the balance as per the passbook matches the balance as per the cash book.
• For most organisations, bank reconciliation usually occurs at the end of each week.
• As a result, the firm would be able to optimise its accounts receivable operations through the automated reconciliation of invoice payments altogether.

Talk to HLB Berman Fisher about implementing this beneficial procedure in your business today. In most scenarios, companies are bound to encounter a residual number of cheques that were either never presented to the bank for payment or not presented for an extended duration. Thus, does everyone need to file an income tax return similar to managing uncleared cheques in the short run, the firm could record these residual cheques in their list of uncleared cheques with the intention of labelling them as ongoing reconciling items. Those payments are recorded in your G/L, but they have yet to hit the bank.

Interest and Dividends Collected by the Bank

This statement is used by auditors to perform the company’s year-end auditing. Manually preparing a bank reconciliation monthly can become exhaustive and time-consuming fast. That’s why most businesses choose to invest in accounting software that automates almost every part of their bank reconciliation process.

Detect fraud and errors

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. Although bank reconciliation won’t stop fraud in its tracks, it can let you know whether it’s happened, as well as the when and where. In other words, the adjusted balance as per the bank must match with the adjusted balance as per the cash book. However, in practice there exist differences between the two balances and we need to identify the underlying reasons for such differences. Therefore, you record no entry in the business' cash book for the above items.

COMPARE THE DEPOSITS

In such a case, your bank has recorded the receipts in your business account at the bank. As a result, the balance showcased in the bank passbook would be more than the balance shown in your company’s cash book. The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook.

ADJUST THE CASH ACCOUNT

Once you have incorporated the adjustments in the bank reconciliation statement, you have to ensure that the totals of both sides mentioned at the bottom match. 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. Journal entries, also known as the original book of entries, refer to the process of recording transactions as debits and credits. When your business receives cheques from its customers, such amounts are recorded immediately on the debit side of the cash book. Whereas, credit balance as the cash book indicates bank overdraft or the excess amount withdrawn from your bank account over the amount deposited. A solid monthly reconciliation process is an effective tool for business owners to both identify problems and maintain a clear understanding of their financial position.

Therefore, you need to pass a journal entry in your books of accounts showcasing the increase in cash balance due to the interest or dividend earned. 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. To quickly identify and address errors, reconciling bank statements should be done by companies or individuals at least monthly. They also can be done as frequently as statements are generated, such as daily or weekly.