By: Flaka Ismaili    October 4, 2021

In this guide, we’ll explain exactly why doing a bank reconciliation is so important, and give you step-by-step instructions on how to complete one. Matching the payment to an invoice can be challenging if the payments are ongoing, so it’s important to reference payments to an invoice number so you can easily identify a double payment. Due to the overwhelming paperwork that the financial department deals with, it’s possible that some invoices get misplaced or are never recorded.

• Once you locate these items, you’ll need to adjust your G/L balance to reflect them.
• Our goal is to give you the best advice to help you make smart personal finance decisions.
• It lists the items that make up the differences between the bank statement balance and the accounting system balance, and explains how these differences were resolved.
• Bank reconciliation statement is a report or statement prepared by the business to match the bank transactions recorded in the books of accounts with the bank statement.

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Keeping accurate records of your bank transactions can help you determine your financial health and avoid costly fees. Using this simple process each month will help you uncover any differences between your records and what shows up on your bank statement. Bank reconciliation statements compare transactions from financial records with those on a bank statement. Where there are discrepancies, companies can identify and correct the source of errors.

For instance, it can create stumbling blocks and hinder your ability to make well-informed business decisions rooted in accurate data. A bank reconciliation statement can help make sure what’s recorded in your bank account balance is the same as your bank balance. Here, we’ll deep dive into what a bank reconciliation statement is and how to make one, step by step. If left to build up for too long, errors and discrepancies can build up and may start to impact your business and cash flow. Consider how high your transaction volume is and find a reasonable medium that strikes a balance between being practical and taking over your time. Many choose to schedule reconciliation to take place prior to credit control meetings so the data is as up-to-date as can be.

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. The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account. Once solved, be sure to adjust your records to reflect deposits as needed.

Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. So, this means there is a time lag between the issue of cheques and its presentation to the bank.

Bank Reconciliation Process Flow

Bank fees and charges can have a significant impact on a bank reconciliation statement. These fees and charges can include service charges, bank service fees, overdraft fees, account servicing fees, and penalties. It is important to understand these fees and charges to ensure accurate reconciliation of bank accounts. To reconcile a bank statement, an organization must first record all transactions in its accounting system.

What is a Bank Reconciliation?

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. As a result, the balance as per the bank statement is lower than the balance as per the cash book. Such a difference needs to be adjusted in your cash book before preparing the bank reconciliation statement.

Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. Once the balances are equal, businesses need to prepare journal entries for the adjustments to the balance per books. To do this, businesses need to take into account the bank charges, NSF checks and errors in accounting. In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side.

How to Prepare a Bank Reconciliation

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. You can do a bank reconciliation when you receive cash flow statement your statement at the end of the month or using your online banking data. There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them.

Simplify bank reconciliations with automated expense tracking

Doing a bank reconciliation is fairly simple, but you need to be diligent in your efforts and avoid skipping steps to ensure the right checks and balances. Another important reason to perform a bank reconciliation is to improve internal control over your company’s cash. Ideally, the reconciliation will be done by someone other than the person handling and recording receipts and payments.

Such a process determines the differences between the balances as per the cash book and bank passbook. As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records. If you’re missing transactions in your personal records, add them and deduct the amount from your balance. If you’re finding withdrawals that aren’t listed on the bank statement, do some investigation. If it’s a missing check withdrawal, it’s possible that it hasn’t been cashed yet or wasn’t cashed by the statement deadline.

Technology has revolutionized the bank reconciliation process, making it more efficient and accurate. The use of software and online banking platforms has eliminated the need for manual data entry and reduced the risk of errors. Software such as QuickBooks and Xero have integrated bank reconciliation features that allow users to import bank statements directly into the software. This eliminates the need for manual data entry and reduces the risk of errors.

Flaka Ismaili

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