How to do a step-by-step bank reconciliation

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. Once you complete the bank reconciliation statement at the end of the month, you need to print the bank reconciliation report and keep it in your monthly journal entries as a separate document.

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. Non-sufficient funds (NSF) checks are recorded as an adjusted book-balance line item on the bank reconciliation statement. A bank may charge an account maintenance fee, typically withdrawn and processed automatically from the bank account. When preparing a bank reconciliation statement, a journal entry is prepared to account for fees deducted.

What is the definition of bank reconciliation?

Companies which are audited will have the validity of their financial statements put under greater scrutiny due to the audit process, testing whether they are accurate and free from material misstatement. The reconciliation has been successful if the same balance appears in the accounts of both companies, with it being a debtor in one company’s books and a creditor in the other’s. This, in essence, ensures that the consolidated accounts eliminate any artificial profit/loss from intercompany transactions. Reconciliation is an accounting process which SMB owners and their accountants need to perform to ensure that the correct balances are recorded within their accounts. The need and importance of a bank reconciliation statement are due to several factors.

Bank reconciliation means comparing your bank statement’s listed transactions with your business’s internal records, then adjusting your internal accounting records to ensure they’re accurate. It’s also the foundation of small-business accounting and bookkeeping, so you’ll want to familiarize yourself with the process as soon as possible—you’ll be doing it pretty often. 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.

Bank Reconciliation Process Flow

The reconciliation statement allows the accountant to catch these errors each month. The company can now take steps to rectify the mistakes and balance its statements. 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.

More specifically, a bank reconciliation means balancing your bank statements with your bookkeeping. Sometimes your current bank account balance is not a true representation of cash available to you, especially if you have transactions that have not settled yet. If you’re not careful, your business checking account could be subject to overdraft fees. Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Reconciling your bank statement used to involve using a checkbook ledger or a pen and paper, but modern technology—apps and accounting software—has provided easier and faster ways to get the job done. Regardless of how you do it, reconciling your bank account can be a priceless tool in your personal finance arsenal.

Bank Reconciliation Procedure

If so, these entries will not appear in the bank reconciliation statement prepared at the end of the current month. Similarly, some checks credited to the ledger account will probably not have been processed by the bank prior to the bank statement date. Checks which have been written, but have not yet cleared the bank on which they were drawn. In the bank reconciliation, outstanding checks are deducted from the balance per bank. The more frequently you reconcile your bank statements, the easier it is each time. For the most part, how often you reconcile bank statements will depend on your volume of transactions.

• Similarly, some checks credited to the ledger account will probably not have been processed by the bank prior to the bank statement date.
• Match the deposits in the business records with those in the bank statement.
• If you’re not careful, your business checking account could be subject to overdraft fees.
• It verifies that the purchases and transactions made align with those recorded by the bank for the same period.
• Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement.

bank reconciliation ensures your business’s internal financial records accurately reflect your cash flow. With bank reconciliation, you and your stakeholders can make decisions based on your bank records and financial statements, understanding both are accurate. Designed to keep your bank and your G/L in balance, the bank reconciliation process also helps you correct possible errors, account for uncashed checks, and even locate missing deposits. To reconcile means to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another.