Bank Reconciliation: Purpose, Example, Process

It is also recommended that they should carry out a bank reconciliation should at least every month if not any sooner. The bank statement, on the other hand, is a document that indicates the bank balance of a company from the bank’s side of transactions. Banks send a bank statement to their customers at the end of each month detailing all the transactions that happened in their bank account during the last month. If a company has more than one bank account in the same or different banks, it will receive multiple bank statements for each account.

Step 1: Prepare your reconciliation form

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. MYOB’s bank feeds feature can automatically pull in your transactions and create a bank reconciliation statement.

Recording bank reconciliations

When it comes to bank transactions, two documents can confirm the bank balance of a company. This first document, or rather a ledger, is the bank book of the company. The bank is an internally prepared document that shows the company’s side of transactions. The company carries over the balance from its bank book to its trail balance and, subsequently, its financial statements.

Timing Differences in Recording of Transactions

As mentioned above, debit balance as per the cash book refers to the deposits held in the bank. This balance exists when the deposits made by your business at your bank are more than the withdrawals. Once the balances are equal, businesses need to prepare journal entries for the adjustments to which of the following is not a step in preparing a bank reconciliation? the balance per books. It’s a fairly simple process of checking your business account against your bank statement. With your opening balance verified, it’s time to start reviewing your transactions. Go through each line one by one, comparing your business’s account to the bank statement.

• Some bank reconciliation examples might include sales, refunds, deposits, purchased supplies, payroll expenses, interest charges, and bank fees.
• The company can now take steps to rectify the mistakes and balance its statements.
• The very purpose of reconciling bank statements with your business’s cash book is to ensure that the balance as per the passbook matches the balance as per the cash book.
• This type of account reconciliation makes it possible to check for errors and detect any possible fraud.
• Such a time lag is responsible for the differences that arise in your cash book balance and your passbook balance.
• Similarly, without bank reconciliation, the company cannot identify any expenses that the bank may have charged to the bank account.

Acquire bank statements

Similarly, the bank might have received funds on the company’s behalf and recorded them in the bank’s records for the company before the organization is aware of the deposit. 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. That part of the accounting system which contains the balance sheet and income statement accounts used for recording transactions. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. HighRadius offers a Record to Report suite that helps you and your business optimize your cash flow management and reduce reconciliation delays.

How Often Should You Reconcile Your Bank Account?

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. An outstanding cheque refers to a cheque payment that has been recorded in the books of accounts of the issuing company.

• 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.
• This can also help you catch any bank service fees or interest income making sure your company’s cash balance is accurate.
• With HighRadius, you can streamline and enhance the bank and account reconciliation process for your business.
• There are times when your business entity deposits a cheque or draws a bill of exchange discounted with the bank.
• Go through each line one by one, comparing your business’s account to the bank statement.
• Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement.

Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them. In huge companies with full-time accountants, there’s always someone checking to make sure every number checks out, and that the books match reality. In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench).

Time-saving

These charges may come in the form of bank charges, interest charges, or taxes levied by the government. However, the bank charges these amounts to its customers’ accounts directly. Since the company does not receive the bank statement until the end of the month, it cannot predict these charges or record them. Unrecorded differences are amounts that are present in the bank statement but not present in the bank book are known as unrecorded differences.

• You will need to contact the bank to correct these errors but will not record any entries in your records because the bank error is unrelated to your records.
• Unrecorded differences may also include direct debits and standing orders that get automatically charged at a specific date.
• Unrecorded items are different from timing differences as the company needs to record these differences in its bank book as well.
• For smaller companies, it’s common to reconcile bank statements during the monthly or quarterly close process.
• This is because reconciling the cash book with the passbook at regular intervals ensures that your business’s cash records are correct.

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It is also a good idea to mark any expenses that have already been included in the bank reconciliation statement to avoid any errors. Within the internal control structure, https://www.bookstime.com/bookkeeping-services/abilene segregation of duties is an important way to prevent fraud. One place to segregate duties is between the cash disbursement cycle and bank reconciliations.