How To Do A Bank Reconciliation: Step By Step

Most reconciliation modules allow you to check off outstanding checks and deposits listed on the bank statement. Nowadays, all deposits and withdrawals undertaken by a customer are recorded by both the bank and the customer. The bank records all transactions in a bank statement, also known as passbook, while the customer records all their bank transactions in a cash book. In the same month, the company wrote a $5,000 check and deposited $2,000 at the end of the day on March 31.

Step 1. Choose Your Method for Reconciliation

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Step 3. Compare Withdrawals

Hopefully, once you’ve dealt with deposits in transit, outstanding checks, interest payments, and bank fees, your bank statement and internal accounting records will match. Resolving the issue could mean paying a bill, depositing a check, or entering a forgotten transaction into your general ledger. A company prepares a bank reconciliation statement to compare the balance in its accounting records with its bank account balance.

Adjust the internal records:

1. Businesses with high volume of transactions must reconcile their bank statements weekly or daily to manage cash flow efficiently.
2. Or, if you use accounting software to track your business’s finances and generate financial statements, the software should have a built-in method to speed up bank reconciliation.
3. At times, your business may either omit or record incorrect transactions for checks issued, checks deposited, or the wrong total, etc.
4. One of the most common causes of discrepancies in bank reconciliations is delays in deposit and transaction processing.

Compare the ending balance of your accounting records debits and credits in accounting to your bank statement to see if both cash balances match. As a result, the bank statement balance will be lower than the cash book balance, so the difference will need to be adjusted in your cash book before preparing the bank reconciliation statement. It’s vital businesses know what type of reconciliation to use and the bank reconciliation process flow in order to be as efficient as possible and support long-term financial stability.

How To Do A Bank Reconciliation: Step By Step

The first entry records a debit to the cash account and a credit to the bank reconciliation account. Completing chart of accounts: a simple guide the necessary data entry duties will ensure that your accounts are accurately balanced. You can also perform bank reconciliation by hand, meaning you’d manually compare your bank statement to your general ledger transaction by transaction. Or, if you use accounting software to track your business’s finances and generate financial statements, the software should have a built-in method to speed up bank reconciliation. Keeping accurate financial statements is the easiest way to simplify your bank reconciliation process. FreshBooks accounting software helps you track income and expenses and generate reports and financial statements.

Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook. So it makes sense to record these items in the cash book first in order to determine the adjusted balance of the cash book. Once the adjusted balance of the cash book is worked is it better to use a bookkeeper cpa or enrolled agent to file your taxes out, then the bank reconciliation statement can be prepared. Cross-checking bank statements with the balance sheet at least once every month during the closing process is necessary.

The correction of the error will increase or decrease the cash account in the books. Once the balances are equal, businesses need to prepare journal entries to adjust the balance per books. 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.

Look for any differences in amounts, dates, or outstanding cheques that have been written but may not yet appear on the bank’s statement. Deposits in transit, for example, could be the cause of discrepancy between the bank statement balance and your internal cash position. For smaller companies, it’s common to reconcile bank statements during the monthly or quarterly close process. However, there are situations where a bank reconciliation might be necessary at the earliest. For example, if a business identifies any suspicious activity or unidentifiable transactions, it’s essential to prepare a bank reconciliation immediately.