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

Once you have worked through all the remaining items on the book side, compute the reconciled balance for the books. You will be increasing your cash account by $5 to account for the interest income, while you’ll be reducing your cash account by $30 to account for the bank service fee. It keeps you updated with regards to your cash flow on a regular basis. It helps you make more accurate cash flow predictions and planning. Bank reconciliation services enable you to better utilize working capital for your business.

If they, don’t match, circle the item in both places so that you can come back to fix the error once all of the transactions have been checked off. Be sure to record any other credit amounts listed, such as corrections by the institution. In your checkbook register, enter How to Prepare a Bank Reconciliation: 8 Steps all of the interest earned on your account (if applicable). The interest earned will appear on the front of your statement. On the back of your monthly statement is a handy form to help you balance. Use it along with the following steps to make balancing a snap.

What is the Bank Reconciliation Process?

If you notice that the opening balance is incorrect, update the balance in the debit/credit field for the relevant bank account and click Save. You can now go back to the reconciliation screen and verify that the difference is now zero. The Bank Reconciliation page includes transactions for this bank account up to your statement end date that have not already been reconciled.

Since audits help you analyze your business well, you can understand how to cut costs and can look out for upcoming financial crises and tackle them. Spotting unused expenses and services will make your finances more transparent for you to plan better. Non-sufficient funds (NSF) checks are recorded as an adjusted book-balance line item on the bank reconciliation statement. To successfully complete your bank reconciliation, you’ll need your bank statements for the current and previous months as well as your company ledger. An online template can help guide you, but a simple spreadsheet is just as effective. Bank reconciliation statements are effective tools for detecting fraud, theft, and loss.

When Does a Business Prepare a Bank Reconciliation Statement?

When done frequently, reconciliation statements help companies identify cash flow errors, present accurate information to investors, and plan and pay taxes correctly. They can also be used to identify fraud before serious damage occurs and can prevent errors from compounding. Bank reconciliation statements are tools companies and accountants use to detect errors, omissions, and fraud in a financial account. Bank reconciliation is a simple and invaluable process to help manage cash flows. The reconciliation statement allows the accountant to catch these errors each month.

The statement also includes bank charges such as for account servicing fees. With HighRadius, you can improve your bank reconciliation process, optimize your cash flow management, and reduce the risk of errors and discrepancies. Try HighRadius’ advanced features today and see how they can help you take your financial operations to the next level.

Example 1: Preparation of Bank Reconciliation Statement Without Adjusting the cash book Balance

The multiple hands involved, as well as the necessity for complete and accurate data, can add to the challenge. Furthermore, your team can focus on more creative tasks, which often ends up resulting in increased employee satisfaction. Not only does this sound like a big project that will require a lot of time, but you probably also know that not many people would be very excited to do this kind of repetitive work. Reconciliation software utilises robotic process automation to carry out the reconciliation like a human being would, but without the need for any manual labor. Not Sufficient Funds (NSF) refers to a situation when your bank does not honour your cheque. This is because the current account on which the cheque is drawn does not have sufficient funds to honour the cheque.

Ideally, you should reconcile your books of accounts with your bank account each time you receive the statement from your bank. The bank may send you a bank statement at the end of each month, every week, or even at the end of each day in case of businesses having a huge number of transactions. In addition to this, the interest or dividends earned on investments is directly deposited into your bank account after a specific period of time. Therefore, you need to pass a journal entry in your books of accounts showcasing the increase in cash balance due to the interest or dividend earned. As mentioned above, the process of comparing your cash book details with the records of your business’ bank transactions as recorded by the bank is known as bank reconciliation. Now, while reconciling your books of accounts with the bank statements at the end of the accounting period, you might observe certain differences between bank statements and ledger accounts.

What is a Bank Reconciliation Statement (BRS)?

This reduces your bank balance as reflected in your bank statement. It is important to note that such charges are not recorded by you as a business till the time your bank provides you with the bank statement at the end of every month. These outstanding deposits must be deducted from the balance as per the cash book in the bank reconciliation statement. Deposits in transit are also referred to as outstanding deposits. 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.

All dividends receivable are credited directly to the bank account. During December, an amount of ₹780 was credited by the bank and no entry is made in the cash book. After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same. If they are still not equal, you will have to repeat the process of reconciliation again. Businesses maintain a cash book to record both bank transactions as well as cash transactions.

Her experience helps business owners quickly accomplish their financial goals. As the owner of BudgetEase, Kathy works with clients to develop a plan to efficiently process 1,000s of small transactions so owners can make informed decisions. She lives in Shaker Heights, OH with her husband Ralph and enjoys golf, curling and walking in Cleveland’s fabulous Metro Parks.

Remember, banks make mistakes, too, with transposition errors common. Now the owner will make the proper journal entries to record the automatic deposit and charges made to the cash account, which will bring the cash register balance up to date. Knowing how much you’re supposed to receive is key to ensuring that you’ll have the right amount of cash in hand at the right time. You may be promised a payment after delivering your services and you may have entered these in your records before actually receiving the money. A reconciliation will help you identify this, and will prod you to follow up on overdue invoices.

They must adopt uncompromising standards to ensure all the company’s records from ledger to balance sheet are correct and verified. Zoho Books is a complete finance management software that helps you with your accounting needs. With a smart accounting solution, you can record your transactions securely with ease, accuracy, and customized accessibility.