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

The bank reconciliation is an internal document prepared by the company that owns the checking account. Infrequent reconciliations make it difficult to address problems with fraud or errors when they first arise, as the needed information may not be readily available. Also, when transactions aren’t recorded promptly and bank fees and charges are applied, it can cause mismatches in the company’s accounting records.

  • In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side.
  • If you have outstanding checks, then you want to subtract those outflows from the bank balance.
  • Others use a paper checkbook, and balance it each month, to keep a record of any written checks and other transactions.

The second main issue that can arise with a manual bank reconciliation process is that fraud may not be detected promptly, or in some cases, goes undetected. For example, real estate investment company ABC purchases approximately five buildings per fiscal year based on previous activity levels. The company reconciles its accounts every year to check for any discrepancies.

Errors Made by Your Business or your Bank

However, there can be situations where your business has overdrafts at the bank.

  • 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.
  • Deposits in transit are cash and checks that you’ve received and recorded in your internal accounting records, but which haven’t yet cleared your bank account.
  • Perhaps the charges are small, and the person overlooks them thinking that they are lunch expenses, for example.
  • Because the individual is fastidious about keeping receipts, they call the credit card to dispute the amounts.
  • After performing a bank reconciliation, it is advised that the document is kept on file like any other financial statement that a business generates and held onto as part of its records.

This often happens when the checks are written in the last few days of the month. 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.

How Often Should You Do a Bank Reconciliation?

Mitch has more than a decade of experience as personal finance editor, writer and content strategist. Before joining Forbes Advisor, Mitch worked for several sites, including Bankrate, Investopedia, Interest, PrimeRates and FlexJobs. It probably sounds like a tedious task and it certainly can be if it comes down to matching each payment one-by-one. But thankfully, there are many solutions today that make this process a little less painful.

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. In the context of small businesses, the primary objective of reconciling the bank statement is to ensure concurrence between the recorded balance of the business and the balance reported by the bank. This process serves the purpose of effectively managing and monitoring cash flow within the company.

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. From the following particulars of Zen Enterprises, prepare a bank reconciliation statement as of December 31, 2021. Therefore, you record no entry in the business’ cash book for the above items. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account.

Reasons for Difference Between Bank Statement and Company’s Accounting Record

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. It is important to note that such charges are not recorded by you as a business till the time your bank provides you with the bank statement at the end of every month. It is even better to conduct a bank reconciliation every day, based on the bank’s month-to-date information, which should be accessible on the bank’s web site.

Businesses maintain a cash book to record both bank transactions as well as cash transactions. The cash column in the cash book shows the available cash while the bank column shows the cash at the bank. We’ll take bookkeeping completely off your hands (and deal with the bank reconciliations too). Reconciling your bank statements won’t stop fraud, but it will let you know when it’s happened.

The bank sends the account statement to its customers every month or at regular intervals. To reconcile a bank statement, the account balance as reported by the bank is compared to the general ledger of a business. Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them.

Since you’ve already adjusted the balances to account for common discrepancies, the numbers should exactly match one another. If you find that the adjusted balances still do not match, then it’s very likely an error, or worse, fraud occurred. Let’s assume that a new company opens its first checking account on June 4 with a deposit of $10,000.

Understanding the Bank Reconciliation Statement

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.

Add book transactions to your bank balance

At times, you might give standing instructions to your bank to make some payments regularly on specific days to the third parties. For instance, insurance premiums, telephone bills, rent, sales taxes, etc are directly paid by your bank on your behalf and debited to your account. It is important to note that it takes a few days for the bank to clear the cheques. This is especially common in cases where the cheque is deposited at a bank branch other than the one at which your account is maintained.

Bank Service Charge

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 how long should you keep business records the month. Bank reconciliation statements are effective tools for detecting fraud, theft, and loss. For example, if a check is altered, the payment made for that check will be larger than you anticipate.

By diligently performing bank reconciliations, businesses can maintain accurate financial records and gain valuable insights into their financial position. Go through each transaction individually to make sure the amounts match perfectly. You want to make sure that your bank statements show an ending account balance that aligns with your internal accounting records or that you have specific explanations for the difference. The information on the bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month. Compare the ending balance of your accounting records to your bank statement to see if both cash balances match.

The goal is to find the difference between the two and book accounting entries, where needed, to make them match. Some businesses with a high volume or those that work in industries where the risk of fraud is high may reconcile their bank statements more often (sometimes even daily). If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or it wasn’t properly reconciled last month.


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