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. Similarly, if customer payment checks on the balance sheet do not match bank records, a cross-check is necessary. A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed.
- It’s the duty of any business, large or small, to keep accurate financial records to ensure things balance.
- This is because the current account on which the cheque is drawn does not have sufficient funds to honour the cheque.
- This implies that the company must check and verify both internal statements and the statement received by the bank.
- Cross-checking bank statements with the balance sheet at least once every month during the closing process is necessary.
Without reconciling, companies may pay too much or too little in taxes. 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. The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. 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.
Bank reconciliation process
Therefore, processes must be completed at the end of the year to ensure that all transactions have been properly recorded in the company’s records. He has a CPA license in the Philippines and a BS in Accountancy graduate at Silliman University. The check register above shows that Paul’s Plumbing issued seven checks to vendors (101, 102, 103, 104, 105, 106, and 107).
Before you start reconciling bank accounts, get your bank statement, check register, and previous bank reconciliation statement first. Therefore, the bank reconciliation process should be carried out at regular intervals for all of your bank accounts. This is because reconciling the cash book with the passbook at regular intervals ensures that your business’s cash records are correct.
Step #4: Make Sure That the Balance As Per Bank Matches With the Balance As Per Cash Book
Before you reconcile your bank account, you should ensure that you record all the transactions of your business until the date of your bank statement. 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.
Add book transactions to your bank balance
The reconciliation statement allows the accountant to catch these errors each month. The company can now take steps to rectify the mistakes and balance its statements. After adjusting the balance as per the cash book, make sure that you record all adjustments in your company’s general ledger accounts. Finally, when all such adjustments are made to the books of accounts, the balance as per the cash book must match that of the passbook. There are times when the bank may charge a fee for maintaining your account. Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account.
Make the Cash Account Adjustments
Bank Errors are mistakes made by the bank that were discovered when the company prepared the bank reconciliation. The company should immediately contact the bank so the bank can make the correction to the company’s current account balance. The primitive reason to do a stringent bank reconciliation process is to ensure no discrepancy between actual and recorded transactions.
We offer reconciliation reports, discrepancy identification, and live accountants to work with for ease and confidence when closing your books. All of your bank and credit card transactions automatically sync to QuickBooks to help you seamlessly track your income & expenses. Here’s an example of how By the Bay Contracting’s bank reconciliation would look. However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors. So, this means there is a time lag between the issue of cheques and its presentation to the bank. Therefore, such adjustment procedures help in determining the balance as per the bank that goes into the balance sheet.
When it comes to optimizing accounts payable management, reconciling your bank account is critical to staying on track. If you don’t ensure the business and bank are on the same page, tiny mistakes can snowball into huge problems. Reconciling bank statements typically happens at the end of each month advantages and disadvantages of multiple linear regression when your financial institution sends over your statement. It’s the duty of any business, large or small, to keep accurate financial records to ensure things balance. Auto-reconciling transactions reduces human errors such as keying inaccuracies and adds security to the reconciliation process.
