Once you complete the bank reconciliation statement at the end of the month, you need to print a bank reconciliation report and keep it in your monthly journal entries as a separate document. This document will make auditors aware of the reconciled information at a later date. When your business receives cheques from its customers, these amounts are recorded immediately on the debit side of the cash book so the balance as per the cash book increases.

1. If there are any differences, adjust the balance sheet to reflect all transactions.
2. It’s recommended for a company to perform a bank reconciliation at least once a month.
3. These debits made by the bank directly from your bank account will lead to a difference between balances.
4. Following the completion of the reconciliation journals are required to post the adjustments for the reconciling items.

Know that banks might also make errors

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). Some bank services, including expedited payments, bank drafts, and in some cases paper bank statements, may come with additional bank fees. If a company is unaware of the exact amount of these fees, they may not be included in the company’s financial records and will only be seen when they receive their bank statement. Conducting regular bank reconciliation helps you catch any fraud risks or financial errors before they become a larger problem. This includes everything from major fraud and theft to accounting miscalculations, insufficient funds, and incomplete or duplicated payments.

Bank Reconciling Statement: Adjusting Balance per cash Books

In the same month, the company wrote a $5,000 check and deposited $2,000 at the end of the day on March 31. As a result, the company’s books, or cash account, reflect a $7000 debit balance as of March 31. Miscellaneous debit and credit entries in the bank statements must be recorded on the balance sheet.

Step 1: Collect the business and bank records

That means it hasn’t been reflected in the bank statements, yet it’s recorded in your cash book, so you need to deduct it from your records. For large organizations and small businesses alike, a bank reconciliation should be prepared periodically because it enables you to report the most up-to-date figures. Knowing this information enables you to discover potentially nefarious activities, the bank administrator’s incompetence, or weaknesses in your reporting system in a timely manner. Additionally, many businesses are required by law to reconcile their bank accounts on a regular basis as part of their financial reporting obligations. Income from variable sources like interest and investment may be difficult to predict.

This can be done by creating a checklist or using a reconciliation software tool. Most differences highlighted by the bank reconciliation procedure are due to timing differences as one organisation may have posted an item which the other has not. Instead of doing a bank reconciliation manually and risking oversight, you need expense management software to ensure efficiency and accuracy. An expense or a sale may have been overlooked and modified accrual governmental reporting overview not added to the ledger, causing a balance difference between the book and the bank statement.

Ensure that the income and expenses on the balance sheet match the bank statements to identify any unaccounted expenses or deposits. This process should ensure that reconciling items relating to receipts and payments on the bank statement but not in the cash book are kept to a minimum before preparing the reconciliation statement. If done correctly, the final balance on the two statements should agree, that is to say, the adjusted bank statement balance should be the same as the adjusted cash book balance. As a result, you’ll need to deduct the amount of these cheques from the balance. NSF checks are an item to be reconciled when preparing the bank reconciliation statement, because when you deposit a cheque, often it has already been cleared by the bank.

Cross-checking the bank statement and balance sheet can be done without human intervention using software tools. By avoiding these common errors, you can ensure the accuracy of your organization’s financial records, make informed business decisions, and reduce the risk of financial issues. Regular reconciliation and review of financial records can help identify and resolve errors promptly, reducing the risk of financial issues. Not recording all transactions in the accounting system can lead to discrepancies between the balance sheet and the bank statement, making it difficult to reconcile. For example, if a business writes a check, it will post it to its cash book that day and then send it on to its supplier. The check then passes through the banking system and eventually, a few more days later, it is processed by the bank of the business and posted to its account (bank statement).