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. Once the adjusted balance of the cash book is worked out, then the bank reconciliation statement can be prepared. In this way, the number of items that cause the difference between the passbook and the cash book balance gets reduced.

Automation can solve the problem of time-consuming manual reconciliation and reduce errors. Cross-checking the bank statement and balance sheet can be done without human intervention using software tools. Next, prepare the business records, which can be maintained on a software tool or manually on a spreadsheet. Compare the balance sheet’s ending balance with the bank statement’s ending balance.

A bank reconciliation is a process of matching the balances in a business’s accounting records to the corresponding information on a bank statement. The goal of the bank reconciliation process is to find out if there are any differences between the two cash balances. If there are any discrepancies, you have to recheck your company’s accounting records as appropriate. Small business owners can take advantage of the process to ascertain their true cash balance by identifying discrepancies and irregularities in their bank accounts. For example, if the bank has cashed a check for a different amount, it is considered a bank mistake. Likewise, you have made deposits, but the bank did not record them, it is considered an online banking software error.

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 get updated automatically. Ideally, you should reconcile your books of accounts with your bank account each time you receive the statement from your bank. The bank may send you a bank statement at the end of each month, every week, or even at the end of each day in case of businesses having a huge number of transactions. Transactions that aren’t accounted for in your bank statement won’t be as obvious as bank-only transactions. This is where your accounting software can really help you reconcile and keep track of outstanding checks and deposits.

How to do a bank reconciliation (step by step)

The purpose is to correct errors found in your general ledger and bank statement. Business owners can post items from the bank statement into the general ledger using the journal entries. It is crucial to re-run the ledger cash account after posting all journal entries. Interest is automatically deposited into a bank account after a certain period of time.

In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side. The bank sends the account statement to its customers every month or at regular intervals. To reconcile a bank statement, the account balance as reported by the bank is compared to the general ledger of a business. At the end of this process, the adjusted bank balance should equal the company’s ending adjusted cash balance. This is a simple data-entry error that occurs when two digits that are accidentally reversed (i.e. transposed) when posting a transaction.

Then, you make a record of those discrepancies, so you or your accountant can be certain there’s no money that has gone “missing” from your business. Before you reconcile your bank account, you should ensure that you record all the transactions of your business until the date of your bank statement. In addition to this, the interest or dividends earned on investments is directly deposited into your bank account after a specific period of time. 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. 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.

To Keep Financial Reports Accurate

Next, check to see if all of the deposits listed in your records are present on your bank statement. For example, let us assume that your account reflects $9,100 while your bank statement reflects the gap between gaap and non $9,000. When you check your transactions, you realize that the excess $100 is because the bank has charged a total transaction fee which you haven’t added to your account statement.

Accountants and Bookeepers

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. Bank reconciliations may be tedious, but the financial hygiene will pay off. 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. It is important to note that it takes a few days for the bank to clear the cheques. This is especially common in cases where the cheque is deposited at a bank branch other than the one at which your account is maintained.

Once you’ve gone through and matched each transaction, compare the final closing balance on the bank statement to your account. This number then becomes the starting balance for your next reconciliation. Many business owners simply assume the numbers from their bank and accounting software are correct. While it’s highly likely that they are, issues do occur, and it never hurts to double check. It’s advisable to consult with a financial professional to advise on the appropriate journal entries for your bank reconciliation adjustments. They will ensure all is as it should be and no data is incorrect or missing.

Identify Errors with Check Deposits

A few such instances include deposits in transit and outstanding checks. Such banking errors should be modified so that the right amount gets reflected. You should perform bank reconciliation at least every month—which is how often your bank sends a bank statement.

The very purpose of reconciling the bank statement with your business’ books of accounts is to identify any differences between the balance of the two accounts. As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records. If you’re missing transactions in your personal records, add them and deduct the amount from your balance.

Bank fees and other charges, accrued interest, not sufficient funds (NSF) cheques and errors are some of the items you might need to adjust. Some bank reconciliation examples might include sales, refunds, deposits, purchased supplies, payroll expenses, interest charges, and bank fees. A thorough review at this stage can save a lot of time down the road by catching errors early.

This ultimately results in more time to focus on what matters most – providing an amazing experience for your customers. If you notice discrepancies in your accounts that can’t be resolved in other ways, you might need to consider this possibility. While we all try our best to minimise errors, inevitably a number will be mis-typed or a line will be skipped when entering transactions.

If you do not reconcile your accounts, then your financial records may be wrong and you may not be aware of recurring issues that need to be corrected. In this blog, we will discuss what it means to reconcile your bank account and the general steps to reconciling your account. The frequency of reconciling bank statements depends on the size and complexity of the business and its transaction volume. For larger companies with a high volume of transactions, it’s advisable to reconcile bank statements daily to ensure that any discrepancies or errors are identified and corrected promptly.

If you’re searching for accounting software that’s user-friendly, full of smart features, and scales with your business, Quickbooks is a great option. Many individuals and small business owners have interest-bearing accounts, allowing them to earn interest on their deposits. For example, depositing money into a savings account or interest-bearing checking account can help you earn interest on your money.

Look for any differences in amounts, dates, or checks that have been written but may not appear on the bank statement. 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. In these cases, journal entries record any adjustment to the book’s balance. After fee and interest adjustments are made, the book balance should equal the ending balance of the bank account. Business owners regularly compare their records with bank transactions to ensure there are no errors.

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