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

The easiest way to check for this is to print a check register for the month and compare it to the checks that have cleared the bank. Any checks that have been issued that haven’t cleared the bank must be accounted for under your bank balance column. That means your account could quickly become overdrawn, with penalties and fees https://www.online-accounting.net/ adding up in a matter of days. This is probably the most important step in the entire bank reconciliation process. Most business owners receive a bank statement, either online or in the mail, at the end of the month. Most business accounts are set up to run monthly, though some older accounts may have a mid-month end date.

Preparing a Bank Reconciliation Statement

It’s true that most accounting software applications offer bank connectivity, which can speed up the reconciliation process immensely. However, connecting your accounting software to your bank or financial institute does not take the place of doing a month-end what is a current asset bank reconciliation. In this day of electronic banking, many people believe completing a bank reconciliation is no longer necessary. You should perform monthly bank reconciliations so you can better manage your cash flow and understand your true cash position.

How Often Should You Reconcile Bank Statements?

Whether this is a smart decision depends on the volume of transactions and your level of patience. For example, a restaurant or a busy retail store both process a lot of transactions and take in a lot of cash. They might reconcile on a daily basis to make sure everything matches and all cash receipts hit the bank account.

Step 1: Prepare your reconciliation form

1. We’re going to look at what bank statement reconciliation is, how it works, when you need to do it, and the best way to manage the task.
2. If there are any differences between the bank statement and the balance sheet, cross-check to identify the mistake’s source.
3. Most business owners receive a bank statement, either online or in the mail, at the end of the month.
4. Next, check to see if all of the deposits listed in your records are present on your bank statement.
5. In huge companies with full-time accountants, there’s always someone checking to make sure every number checks out, and that the books match reality.

If there’s a discrepancy between your accounts and the bank’s records that you can’t explain any other way, it may be time to speak to someone at the bank. Reconciling your bank statements won’t stop fraud, but it will let you know when it’s happened. In other words, the adjusted balance as per the bank must match with the adjusted balance as per the cash book. Bank reconciliation is undertaken in order to ensure that your balance as per the bank statement is correct.

Who’s responsible for bank reconciliations?

If you use accounting software, then your reconciliation is done largely for you. However, as a business owner, it’s important to understand the reconciliation process. The deposit could have been received after the cutoff date for the monthly statement release.

Therefore, such adjustment procedures help in determining the balance as per the bank that goes into the balance sheet. This is also known as unfavorable balance as per the cash book or unfavorable balance as per the passbook. More specifically, you’re looking to see if the “ending balance” of these two accounts are the same over a particular period (say, for the month of February). Bank reconciliations may be tedious, but the financial hygiene will pay off. Such cheques are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment. At times, you might give standing instructions to your bank to make some payments regularly on specific days to the third parties.

This is done by taking into account all the transactions that have occurred until the date preceding the day on which the bank reconciliation statement is prepared. When your business receives cheques from its customers, such amounts are recorded immediately on the debit side https://www.online-accounting.net/bookkeeping/ of the cash book. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook. Therefore, it makes sense to first record these items in the cash book to determine the adjusted balance of the cash book.