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

For the most part, how often you reconcile bank statements will depend on your volume of transactions. Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control. And if you’re consistently seeing a discrepancy in accounts receivable between your balance sheet and your bank, you know you have a deeper issue to fix.

• NSF cheques are an item to be reconciled while preparing the bank reconciliation statement.
• As mentioned above, bank overdraft is a condition where a bank account becomes negative as a result of excess withdrawals over deposits.
• Businesses that use online banking service can download the bank statements for the regular reconciliation process rather than having to manually enter the information.
• A bank reconciliation is a process performed by a company to ensure that its records (check register, general ledger account, balance sheet, etc.) are correct.
• Single-entry bookkeeping is less complicated than double-entry and may be adequate for smaller businesses.

Your business and the bank keep separate records of deposits, withdrawals, checks, and every other cash balance that flows in and out of the business. Hence, at least once a month, you’re responsible for preparing a bank reconciliation to ensure that both of these independent sets of records align. Before sitting down to reconcile your business and bank records, gather your company ledger and the current and previous bank statements. You can get a template online to use for your bank reconciliation statement, or you can use a spreadsheet. Bank reconciliation statements can help identify accounting errors, discrepancies and fraud. For instance, if the company’s records indicate a payment was collected and deposited, yet the bank statement does not show such a deposit, there may have been a mistake or fraud.

What is the difference between the first and second entries?

We’ll take bookkeeping completely off your hands (and deal with the bank reconciliations too). One is making a note in your cash book (faster to do, but less detailed), and the other is to prepare a bank reconciliation statement (takes longer, but more detailed). Once you’ve figured personalized sports gifts and apparel out the reasons why your bank statement and your accounting records don’t match up, you need to record them. The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books.

Similarly, entries of differences that have led to increased cash book balance are deducted from the balance as per the cash book. So, if you don’t reconcile your bank account regularly, you might not receive that amount of money. On the other hand, if you sit down to reconcile your bank account, you will notice a discrepancy between your records and your bank’s records. When they don’t, it’s time to conduct an investigation and, if necessary, make improvements. The bank statement contains the bank’s record of all transactions affecting the entity’s bank account throughout the previous month. Here are two examples to reinforce the bank’s use of debit and credit with regards to its customers’ checking accounts.

Then, go to the company’s ending cash balance and deduct from it any bank service fees, NSF checks and penalties, and add to it any interest earned. At the end of this process, the adjusted bank balance should equal the company’s ending adjusted cash balance. You must post the journal entries of all the adjustments made to the balance as per the cash book.

Keep in mind that banks can make mistakes too, so make sure to check both documents for possible errors. It’s also important to note that you only need to do a bank reconciliation if you’re using accrual accounting. If you’re using cash accounting, it means you record every transaction simultaneously with the bank, so there can’t be any miscalculations and thus no need for reconciliation. The disparity between the balance in the cash book and the balance in the bank statement or passbook is caused by such transactions in the bank statement. There are a few reasons for differences that arise while comparing the balances in the cash book and balances in the bank statement.

What happens if you leave it too long to do a bank reconciliation?

A bank reconciliation statement can help you identify differences between your company’s bank and book balances. It involves comparing a company’s bank statements with its records of bank transactions. It sounds mind-numbing and it can be if you’re doing it manually with paper bank statements. Most banks will send your transaction data directly to online accounting software. Then you have both sets of records on the same screen and you can run through them really fast.

As a result, the balance showcased in the bank passbook would be more than the balance shown in your company’s cash book. As a result, the balance as per the bank statement is lower than the balance as per the cash book. Such a difference needs to be adjusted in your cash book before preparing the bank reconciliation statement. Compare your personal transaction records to your most recent bank statement. First, make sure that all of the deposits listed on your bank statement are recorded in your personal record. If not, add the missing deposits to your records and your total account balance.

Compare the Balances

You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business. The statement also includes bank charges such as for account servicing fees. Let’s assume that a new company opens its first checking account on June 4 with a deposit of $10,000. During the month of June the company wrote five checks with a total of $5,000. It also made a $2,000 deposit in the bank’s night depository after banking hours on June 30.

However, the depositor/customer/company debits its Cash account to increase its checking account balance. Note that Community Bank credits its liability account Customers’ Deposits (which includes the individual depositor’s checking account balance). As a result, Community Bank’s balance sheet will report an additional $10,000 in assets and an additional $10,000 in liabilities. When the bank debits a depositor’s checking account, the depositor’s checking account balance and the bank’s liability to the customer/depositor are decreased. Bank reconciliations are typically prepared by the company’s accounting or finance department.

Manage Bank Reconciliations With NetSuite

Otherwise, there is a risk that cash levels may be far lower than what the accounts say, which may result in bounced checks or overdraft costs. As you know, the balances in asset accounts are increased with a debit entry. In accounting, a company’s cash includes the money in its checking account(s). To safeguard this critical and tempting asset, a company should establish internal controls over its cash. Starting with your bank statement balance, add any deposits you’ve made that have not yet cleared.

Furthermore, it gets easier to ascertain the correct amount of balance at the bank in the balance sheet. Bank reconciliation is the process of matching the bank balances reflected in the cash book of a business with the balances reflected in the bank statement of the business in a given period. Such a process determines the differences between the balances as per the cash book and bank passbook.

Adjust the internal records:

Otherwise, it may find that cash balances are much lower than expected, resulting in bounced checks or overdraft fees. A bank reconciliation will also detect some types of fraud after the fact; this information can be used to design better controls over the receipt and payment of cash. Bank reconciliations can be challenging and time-consuming, leading to various problems that individuals and businesses may encounter. To further optimise your accounting process and, therefore, your cash flow, it’s worth leveraging accounts receivable software like that offered by Chaser. An accounting software and dedicated company that really takes into consideration each customer and client, it’s designed to make your bank reconciliations so much easier.

If you do your bookkeeping yourself, you should be prepared to reconcile your bank statements at regular intervals (more on that below). If you work with a bookkeeper or online bookkeeping service, they’ll handle it for you. Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees. To reconcile a bank statement, the account balance as reported by the bank is compared to the general ledger of a business.

They also can be done as frequently as statements are generated, such as daily or weekly. Businesses with multiple bank accounts or complex transactions face additional challenges. Lastly, a lack of accounting knowledge can hinder the reconciliation process. This ensures everything matches up and helps you find any mistakes that need to be considered. Bank service charges are fees the bank charges for various services they provide, such as monthly maintenance or overdraft fees. Bank service fees can affect your account balance and must be accounted for during reconciliation.