How to Prepare a Bank Reconciliation in 4 Steps

This statement shows reasons for any discrepancies between the two. A company can prepare a bank reconciliation statement at any time during its financial periods. 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.

The purpose of a bank reconciliation statement is to identify any discrepancies between the two balances and to reconcile them. Bank Reconciliation is the process of comparing your business’ books of accounts with your bank statements. It is done periodically to check whether the bank-related transactions are recorded properly switching to wave from freshbooks in your books of accounts. Bank reconciliation is the process of comparing the balance as per the cash book with the balance as per the passbook (bank statement). The very purpose of reconciling the bank statement with your business’ books of accounts is to identify any differences between the balance of the two accounts.

Step #5: Record All The Adjustments As Per Cash Book Into Your Company’s General Ledger Cash Account

Moving forward, the financial professional could then sign these bank reconciliation statements electronically prior to submitting these documents to the designated reviewer for clearing. Once these steps have been completed, the information can then be saved within the database of the accounting software as an audit trail for long-term safekeeping. As a general rule of thumb, a bank reconciliation statement for every bank account ought to be prepared at regular intervals to make sure that an organisation’s cash records are truthful. Otherwise, the company may encounter lower-than-anticipated cash balances or, in the worst cases, overdraft fees and bounced cheques. On that note, bank reconciliation exercises are also a practical approach for businesses to formulate improved corporate governance policies and internal controls over cash payments and receipts.

However, there may be a situation where the bank credits your business account only when the cheques are actually realised. 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. If you want to prepare a bank reconciliation statement using either of these approaches, you can take balance as per the cash book or balance as per the passbook as your starting point.

What are some things that can go wrong when reconciling accounts?

A bank reconciliation statement is prepared at the end of the month. The entries in the statement stop being the cause of discrepancies after a few days. Bank reconciliation statements are useful check-and-balance tools used to detect errors, omissions, and fraud in a financial account. Bank reconciliation is a simple and invaluable process to help manage cash flows. Bank reconciliation statements also help identify errors that could adversely affect financial reporting. Financial statements show the health of a company or entity for a specific period or point in time.

The cash book and pass book/bank statement are prepared separately. The bank reconciliation statement aids in the detection and correction of any errors made in both books. 2.The bank reconciliation statement ensures that the entries in both books are correct. Markson’s & co. has a difference in balance as per cash book and bank statement as on 31st March 2021.

What Is a Bank Reconciliation Statement?

We need to do a bank reconciliation to find out why there is a difference. In accounting, cash includes coins; currency; undeposited negotiable instruments such as checks, bank drafts, and money orders; amounts in checking and savings accounts; and demand certificates of deposit. A certificate of deposit (CD) is an interest-bearing deposit that can be withdrawn from a bank at will (demand CD) or at a fixed maturity date (time CD). Only demand CDs that may be withdrawn at any time without prior notice or penalty are included in cash. Cash does not include postage stamps, IOUs, time CDs, or notes receivable. Similarly, if a businessman deposits any checks on the last day of the month, these cheques may be collected by his bank and shown on his bank statement three or four days later.

Make journal entries for any items not already recorded in the company’s books. Interest is automatically deposited into a bank account after a certain period of time. Thus, the accountant may need to prepare an entry that increases the cash currently shown in the financial records. After all adjustments are made to the books, the balance should equal the ending balance of the bank account.

What is a checking account?

In most scenarios, companies are bound to encounter a residual number of cheques that were either never presented to the bank for payment or not presented for an extended duration. Thus, similar to managing uncleared cheques in the short run, the firm could record these residual cheques in their list of uncleared cheques with the intention of labelling them as ongoing reconciling items. – Add back any deposits in transit to the cash balance that was initially documented in the bank statement. Read this article to learn more about the A to Z of bank reconciliation. The ending cash balance on the general ledger is reconciled to the adjusted bank statement balance.

• Interest is automatically deposited into a bank account after a certain period of time.
• Regularly creating a bank reconciliation statement allows you to find errors by comparing your company ledger with your bank statement.
• Businesses that use online banking service can download the bank statements for the regular reconciliation process rather than having to manually enter the information.
• A statement prepared after tallying the bank e-statement with the book of accounts is the bank reconciliation statement.
• The signed statements should then be carefully filed in date order for each account.

In such a case, you simply need to mention a note indicating the reasons for the discrepancy between your bank statement and cash book. When your business issues a cheque to its suppliers or creditors, such amounts are immediately recorded on the credit side of your cash book. When you compare the balance of your cash book with the balance showcased by your bank passbook, there is often a difference. This means that the bank balance of the company is greater than the balance reflected in its cash book.