The bank may send you a bank statement at the end of each month, each week, or, if your business has a large number of transactions, they may even send one at the end of promissory note each day. There are times when the bank may charge a fee for maintaining your account, which will typically be deducted automatically from your account. Therefore, when preparing a bank reconciliation statement you must account for any fees deducted from your account. To reconcile your bank statement with your cash book, you’ll need to ensure that the cash book is complete and make sure that the current month’s bank statement has also been obtained.

If you want to prepare a bank reconciliation statement using either of these approaches, you can use the balance as per the cash book or balance as per the passbook as your starting point. Likewise, ‘credit balance as per cash book’ is the same as ‘debit balance as per passbook’ means the withdrawals made by a company from a bank account exceed deposits made. Deposits in transit, or outstanding deposits, are not showcased in the bank statement on the reconciliation date. This is due to the time delay that occurs between the depositing of cash or a check and the crediting of it into your account. Since you’ve already adjusted the balances to account for common discrepancies, the numbers should be the same.

Identify Discrepancies

You’ll need a few items to perform a bank reconciliation, including your bank statement, internal accounting records, and a record of any pending cash transactions (either inflows or outflows). Cross-checking bank statements with the balance sheet at least once every month during the closing process is necessary. If the business has a high volume of transactions, reconciliations should be done more frequently. Bank reconciliation statements compare transactions from financial records with those on a bank statement.

Banks take time in clearing checks, so the bank needs to add back the check’s amount to the bank balance. At times, your business may either omit or record incorrect transactions for checks issued, checks deposited, or the wrong total, etc. Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement. If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible). If you suspect an error in your books, see some common bank reconciliation errors below.

Understanding the Bank Reconciliation Statement

This can be accomplished by matching transactions, and then adding or deducting any transactions that do not align to balance the total amounts. By comparing your company’s internal accounting records to your bank statement balance, you can confirm that your records are accurate and analyze the reasons behind any potential discrepancies. Your bank may collect interest and dividends on your behalf and credit such an amount to your bank account. The bank will debit your business account only when they’ve paid these issued checks, meaning there is a time delay between the issuing of checks and their presentation to the bank.

1. For smaller companies, it’s common to reconcile bank statements during the monthly or quarterly close process.
2. The reconciliation of bank statements is a critical step in maintaining accurate financial records for any business, ensuring that the company’s accounting records are up-to-date and accurate.
3. If you’re finding withdrawals that aren’t listed on the bank statement, do some investigation.
4. If you find any errors or omissions, determine what happened to cause the differences and work to fix them in your records.
5. A company prepares a bank reconciliation statement to compare the balance in its accounting records with its bank account balance.

Know that banks might also make errors

If you notice this while reconciling your bank accounts, you can take measures to halt the fraud and recover your money. By comparing the two statements, Greg sees that there are $11,500 in checks for four orders of lawnmowers purchased near the end of the month. These checks are in transit, so they haven’t yet been deposited into the company’s bank account. He also finds $500 of bank service fees that hadn’t been included in his financial statement. An NSF (not sufficient funds) check is a check that has not been honored by the bank due to insufficient funds in the entity’s bank accounts. This means that the check amount has not been deposited in your bank account and hence needs to be deducted from your cash account records.

Match deposits and withdrawals to the balance sheet

Performing regular bank reconciliations is key to keeping on top of your company’s financial health and paving the way for sustainable business growth. Bank reconciliation is the process of comparing accounting records to a bank statement to identify differences and make adjustments or corrections. In the case of personal bank accounts, like checking accounts, this is the process of comparing your monthly bank statement against your personal records to make sure they match. Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee. 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.