How to Do a Bank Reconciliation: Step-By-Step Process

bank reconciliation statement

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. By avoiding these common errors, you can ensure the accuracy of your organization’s financial records, make informed business decisions, and reduce the risk of financial issues.

bank reconciliation statement

Step 3. Compare Withdrawals

The accountant will also look to see if prior notification has been received and the event properly recorded. If an entry has not been recorded, the item will appear on the reconciliation. More specifically, you’re looking to see if the “ending balance” of these two accounts are the same over a particular period (say, for the month of February). (f) The cash book does not contain a record of bank charges, $70, raised on 31 May. They also explain any delay in the collection of cheques, and they identify valid transactions recorded by one party but not the other.

More than bank reconciliation. Run your entire business with QuickBooks.

After adjusting all the above items what you get is the adjusted balance of the cash book. Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

bank reconciliation statement

Step 1: Prepare your reconciliation form

In addition, there may be cases where the bank has not cleared the cheques, however, the cheques have been deposited by your business. Therefore, the bank needs to add back the cheque’s amount to the bank balance. Bank reconciliation is undertaken in order to ensure that your balance as per the bank statement is correct. All of this can be done by using online accounting software like QuickBooks. In case you are not using accounting software, you can use Excel to record such items. At times, your business entity may omit or record incorrect transactions for cheques issued, cheques deposited, the wrong total, etc.

How Often Should You Reconcile Your Bank Account?

This is because reconciling the cash book with the passbook at regular intervals ensures that your business’s cash records are correct. In the absence of proper bank reconciliation, the cash balances in your bank accounts could be much lower than the expected level. For smaller companies, it’s common to reconcile bank statements during the monthly or quarterly close process. However, there are situations where a bank reconciliation might be necessary at the earliest.

Who can perform bank reconciliation for your business?

bank reconciliation statement

The items in the bank section show that the bank’s version does not agree with the books because a deposit had not been processed and the checks had not yet been canceled. Service charges may be levied by the bank for regular or special services. They often appear as a reconciling item because banks notify customers of the amount only through the bank statement. Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control.

  1. If you work with a bookkeeper or online bookkeeping service, they’ll handle it for you.
  2. With QuickBooks, you can easily reconcile bank accounts to ensure that the dollars you record are consistent with the dollars reported by the bank.
  3. They might reconcile on a daily basis to make sure everything matches and all cash receipts hit the bank account.
  4. Employees log their hours, you review and approve them, and QuickBooks does the rest.

In the case of personal bank accounts, like checking accounts, this is the process of comparing your monthly bank statement against your personal records to make sure they match. Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee. Therefore, the bank reconciliation process should be carried out at regular intervals for all of your bank accounts.

The more frequently you reconcile your bank statements, the easier it is each time. The business needs to identify the reasons for the discrepancy and reconcile the differences. This is done to confirm every item is accounted for and the ending balances match. If so, these entries will not appear in the the rules for accounting inventory debit and credits prepared at the end of the current month. The need and importance of a bank reconciliation statement are due to several factors. First, bank reconciliation statements provide a mechanism of internal control over cash.

As a result of such direct payments made by the bank on your behalf, the balance as per the passbook would be less than the balance as per the cash book. When you compare the balance of your cash book with the balance showcased by your bank passbook, there is often a difference. Therefore, an overdraft balance is treated as a negative figure on the After adjusting all the above items, what you get is the adjusted balance as per the cash book.

You should perform bank reconciliation at least every month—which is how often your bank sends a bank statement. A single 30-day period should give you a manageable number of transactions to compare between accounts. For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items. Whether this is a smart decision depends on the volume of transactions and your level of patience. When you do a bank reconciliation, you first find the bank transactions that are responsible for your books and your bank account being out of sync.

An asset account in a bank’s general ledger that indicates the amounts owed by borrowers to the bank as of a given date. At, our research is meant to offer general product and service recommendations. We don’t guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services. Check out our bookkeeping basics to continue setting up your books and building a solid financial foundation for your new business. The service charge was deducted from the reconciliation because no notification had been received about the amount prior to receiving the statement.

The statements give companies clear pictures of their cash flows, which can help with organizational planning and making critical business decisions. The Transaction Matching software utilizes AI to discover and configure matching rules, enabling automatic line-level transaction matching between different data sources. If an error is identified during the reconciliation process, it’s not always at the company’s end. Banks can also make errors, and if the mistake can’t be identified, contact the bank.

Bank Example 1 showed that the bank credits the depositor’s checking account to increase the depositor’s checking account balance (since this is part of the bank’s liability Customers’ Deposits). 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 order to prepare a bank reconciliation statement, you need to obtain the current as well as the previous month’s bank statements and the cash book. 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. An outstanding cheque refers to a cheque payment that has been recorded in the books of accounts of the issuing company.

When done frequently, reconciliation statements help companies identify cash flow errors, present accurate information to investors, and plan and pay taxes correctly. They can also be used to identify fraud before serious damage occurs and can prevent errors from compounding. Bank reconciliation statements are tools companies and accountants use to detect errors, omissions, and fraud in a financial account. Bank reconciliation is a simple and invaluable process to help manage cash flows. Financial statements show the health of a company or entity for a specific period or point in time. Accurate financial statements allow investors to make informed decisions.

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. There are bank-only transactions that your company’s accounting records most likely don’t account for.