How to Do a Bank Reconciliation: Step-By-Step 2024

Everything listed on the bank statement should be included in your records and vice versa. When an account is reconciled, the statement’s transactions should match the account holder’s records. For a checking account, it is important to factor in any outstanding checks or pending deposits. As you know, the balances in asset accounts are increased with a debit entry. Managing your finances involves balancing your bank statement versus your books. Bank reconciliation helps ensure that your financial records align with your bank’s records for precise accounting.

  • After you’ve received bank statements, establish the last reconciled transaction from the previous period and begin there.
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  • Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account.
  • This helps to ensure that there are no discrepancies between the two systems and that your books accurately reflect your financial position.

We understand the role of your reconciliation solution as a centralized orchestrator of incoming and outgoing financial data streams. Therefore, the flexibility to transfer large volumes of data hands-free and under secure connection is essential. Our goal is to give you the best advice to help you make smart personal finance decisions.

Generate a bank reconciliation statement

Depending on the number of discrepancies, you may need to create a supporting schedule that details the differences between your internal books and bank accounts. Check that all incoming funds have been reflected in both your internal records and your bank account. Find any deposits and account credits that haven’t yet been recorded by the bank and add these to the statement balance. If the bank shows money deposits not reflected in your internal books, make the entries. If you have an interest-bearing account and you are reconciling a few weeks after the statement date, you may need to add interest as well.

  • For instance, say your company’s ledger has a recorded ending balance for a given month of $350,000.
  • When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy.
  • You receive a bank statement, typically at the end of each month, from the bank.
  • The goal is to get your ending bank balance and ending G/L balance to match.
  • You’ll compare the two lists and check a box next to each QuickBooks transaction that also shows up on your bank statement.

Bank reconciliations need to be done regularly to identify discrepancies before they become problems. In the absence of regular bank reconciliations, businesses can end up with bounced checks and failed electronic payments in the short term and even become financially overstretched in a long time. All these outcomes affect cash flow, which can hurt the sustainability and future growth of the business. Bank Reconciliation is the process of matching the company’s cash books to the bank statement. The aim is to ensure all transactions are accurately recorded in the company’s cashbooks and to find any errors or fraud. In this step, you will compare your cash book and internal accounting records with those on the bank statement.

More Resources on Small Business Accounting

The general ledger includes a record of a company’s cash transactions, and a bank statement tracks all money flowing in and out of a company’s account. So, theoretically, these two statements should carry the same information and result in the same cash balances. To balance these two documents, businesses of all sizes need to perform regular reviews, called bank reconciliations. 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. Reconciling bank statements with cash book balances helps you, as a business, to know the underlying causes that lead to such differences.

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. You can also perform bank reconciliation by hand, meaning you’d manually compare your bank statement to your general ledger transaction by transaction. Or, if you use accounting software to track your business’s finances and generate financial statements, the software should have a built-in method to speed up bank reconciliation. A bank reconciliation statement can help you identify differences between your company’s bank and book balances. Overall, ReconArt’s best practice SaaS solution streamlines the bank reconciliation process and provides accountants with the tools they need to maintain accurate financial records.

Doing bank reconciliations regularly helps companies control their financial transactions and easily track errors and omissions. A bank reconciliation statement should be completed monthly but can even be done weekly if your company processes a large number of transactions. Bank reconciliation ensures your business’s internal financial records accurately reflect your cash flow. With bank reconciliation, you and your stakeholders can make decisions based on your bank records and financial statements, understanding both are accurate. 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.

This is because when you deposit a cheque in your bank account, you consider that the cheque has been cleared by the bank. Such deposits are not showcased in the bank statement on the reconciliation date. This happens due to the time lag between when your business deposits cash or a cheque into its bank account and when your bank credits the same.

Not Sufficient Funds Cheques

Designed to keep your bank and your G/L in balance, the bank reconciliation process also helps you correct possible errors, account for uncashed checks, and even locate missing deposits. 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. All deposits and withdrawals undertaken by the customer are recorded both by the bank as well as the customer. The bank records all transactions in a bank statement (also known as passbook) whereas the customer records all their bank transactions in a cash book. Bank reconciliation done through accounting software is easier and error-free.

Step 3: Compare checks and adjust bank total

(e) Standing order payment of $1,500 (for rent) also fails to appear in the cash book. Examples include deposited checks returned for non-sufficient funds (NSF) or notes collected on the depositor’s behalf. These challenges can lead to cascading impacts at month-end or during audits, where time is of the essence and process structure and logic need to be clear. As a result, chaotic operations can seriously compromise the credibility of the process.

Also, when transactions aren’t recorded promptly and bank fees and charges are applied, it can cause mismatches in the company’s accounting records. Interest is automatically deposited into a bank account after a certain period of time. So the company’s accountant prepares an entry increasing the cash currently shown in the financial records. After adjustments are made, the book balance should equal the ending balance of the bank account. Your bank statement balance should now equal the balance in your records.

How to Do Bank Reconciliation?

A bank reconciliation is a critical tool for managing your cash balance. Reconciling is the process of comparing the cash activity in your accounting records to the transactions in your bank statement. This process helps you monitor all of the cash inflows and outflows in your bank account. The reconciliation process also helps capital definition you identify fraud and other unauthorized cash transactions. As a result, it is critical for you to reconcile your bank account within a few days of receiving your bank statement. Bank reconciliation is the process of comparing your company’s bank statements to your own records, ensuring all transactions are accounted for.