How To Do A Bank Reconciliation: Step By Step

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. For example, say ABC Holding Co. recorded an ending balance of $500,000 on its records. After careful investigation, ABC Holding found that a vendor’s check for $20,000 hadn’t been presented to the bank. It also missed two $25 fees for service charges and non-sufficient funds (NSF) checks during the month. A bank may charge an account maintenance fee, typically withdrawn and processed automatically from the bank account.

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Banks can also make errors, and if the mistake can’t be identified, contact the bank. Keeping track of the entire reconciliation process is crucial for reporting errors and corrections to tlm support 2021 the management team later. Documentation also helps non-reconciliation employees cross-check data and refer back to source documents. The bank statement and the company’s records now both show a $6,975 balance. Starting with an incorrect opening balance can lead to errors in the reconciliation process. It’s essential to ensure that the starting balance is accurate before beginning the reconciliation process.

If there’s a discrepancy between your accounts and the bank’s records that you can’t explain any other way, it may be time to speak to someone at the bank. Bench simplifies your small business accounting by combining intuitive software that automates the busywork with real, professional human support. Cash management software allows for scalability, making it easy to streamline the reconciliation process as the business grows. Standardizing the process with a set of steps to follow for reconciliation can make the process more organized and save time. This can be done by creating a checklist or using a reconciliation software tool. However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors.

To see your business as it really is

1. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account.
2. However, sometimes there are differences between the two balances and so you’ll need to identify the underlying reasons for such differences.
3. The bank statement submitted by the businessman at the end of May will not contain an entry for the check, whereas the cash book will have the entry.
4. Accurate cash flow is essential for keeping a business running smoothly, so it’s important to be aware of all incoming and outgoing cash.
5. The goal of bank account reconciliation is to ensure your records align with the bank’s records.

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. One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts. Or there may be a delay when transferring money from one account to another.

This is an important fact because it brings out the status of the bank reconciliation statement. The items therein should be compared to the new bank statement to check if these have since been cleared. Since these items are generally reported to the company before the bank statement date, they seldom appear on a reconciliation. Examples include deposited checks returned for non-sufficient funds (NSF) or notes collected on the depositor’s behalf.

What Does Reconciliation of Bank Statements Mean and Why Is It Important?

There are times when the bank may charge a fee for maintaining your account, which will typically be deducted automatically from your account. Therefore, when preparing a bank reconciliation statement you must account for any fees deducted from your account. To reconcile your bank statement with your cash book, you’ll need to ensure that the cash book is complete and make sure that the current month’s bank statement has also been obtained. Such errors are committed while recording the transactions in the cash book, so the balance as per the cash book will differ from the passbook. When your business issues a check to suppliers or creditors, these amounts are immediately recorded on the credit side of your cash book.

Time-saving

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. To reconcile bank accounts, compare your bank statement to your records, noting any discrepancies. Adjust your records to match the bank statement, considering deposits, withdrawals, fees, and errors. A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed.

Compare the ending balance of your accounting records to your bank statement to see if both cash balances match. Reconciling bank statements with cash book balances helps your business know the underlying causes of these balance differences. Once the underlying cause of the difference between the cash book balance and the passbook balance is determined, you can then make the necessary corrections in your books to ensure accuracy. Cross-checking bank statements with the balance sheet at least once every month during the closing process is necessary.

Once you’ve completed the balance as per the bank, you’ll then need to work out the balance as per the cash book. At times, you might give standing instructions to your bank to make payments regularly on specific days to third parties, such as insurance premiums, telephone bills, rent, sales taxes, etc. (b) Checks Nos. 789 and 791 for $5,890 and $920, respectively, do not appear on the bank statement, meaning these had not been presented for payment to the bank by 31 May. Banks often record other decreases or increases to accounts and notify the depositor by mailed notices. 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. They may not be fun, but when you do them on a regular basis you protect yourself from all kinds of pitfalls, like overdrawing money and becoming a victim of fraud.