When you are running a company or managing accounting, there are some basics you need to be clear about before you indulge in complicated transactions. Transactions can be difficult and, in order to ensure that all is in place, bank reconciliation is necessary.
If this prompts questions to pop in your head, further down is a full summary of what you need to do about the bank reconciliation statement and the information it brings with it.
What is Bank Reconciliation?
Bank reconciliation refers to a document or a report that a business organization produces to align the bank transactions which are in a record in the books of accounts with the bank statements.
Bank reconciliation would help a business in comparing and evaluating the cash balance showing on a companys balance sheet with the figures appearing in the bank statement. These reconciliations are performed at routine intervals to ensure that the cash accounts of the organization are accurate and balanced without any discrepancies, whatsoever.
What is The Purpose of Bank Reconciliation?
A bank reconciliation statement aims to verify the accuracy of the entries reported in the books of the accounts, thus guaranteeing the consistency of the bank balances that are showing. The reconciliation of the two accounts helps to decide what accounting adjustments are necessary and where.
In case of any cash manipulations involved or some kind of fraud, bank reconciliation helps in detecting and identifying such a happening. Once you are able to identify, you can correct the gaps or differences by adjusting the transactions.
What Could Be The Possible Reasons For Difference Between Bank Statement And Companys Accounting Record?
It is considered a normal occurrence that when the bank sends over the statement involving the mentioned companys cash balance at the beginning of the year, transactions, and end of the year cash balance, the latter is different from the cash balance figure showing in the companys accounting records.
Here are a few explanations of why there is a difference between your bank account and your company’s accounting records.
- A difference between the deposited check date and the credited check date
- Outstanding checks that have been released by the company but have not yet been processed by the creditors.
- All the cash and check transactions that have been in record of the company in their books but not by the bank in their statement yet.
- Banks usually deduct a small fee for the transaction that may not be in record of the companys books. Though, the fee is usually a very small amount.
- A check that is received or issued but is not presented to the bank yet for clearing.
- There could be a technical error from the side of the bank in publishing a certain transaction figure.
- A possible error in accounting from the companys side could also occur while recording transaction amounts.
- Small interest accounts might not be in record in the companys accounts, which is why reconciliation is a must.
- Having not sufficient funds (NSF) when a check is deposited into an account but the amount in the issuers bank account is not sufficient to carry out the transaction; reconciliation might be needed to cover the gap due to this.
Bank Reconciliation Statement Format
Given below is a sample format of a bank reconciliation statement:
How To Prepare A Bank Reconciliation Statement?
A Bank Reconciliation Statement includes the procedure of determining and identifying transactions separately and comparing them with the bank statement in such a way that the bank balance that appears in the books matches with the balance shown in the bank.
Relevant changes or corrections take place in the book to balance the ones that are not matching. This will allow synchronization between both sets of transactions.
Normally, at the end of every month, you receive a particular statement from the bank. The statement would include all the cash, deposits, and other transactions that have taken place from the account.
The statement would also incorporate the bank charges that have been levied in the form of account expenses or a fee by the bank. To balance your companys accounting record and the bank statement transactions, here are some points you must consider once you receive the bank statement.
Analyzing And Comparing The Deposits
Make sure that you are matching the deposits appearing in the companys books with the ones in the bank statement. Comparison of each amount in the debit column of the companys records should happen with the credit column of the banks statements and vice versa.
Keep marking the transactions that match so you are clear regarding the status of certain transactions.
Altering The Bank Statements
Now its time to alter and adjust the bank statements to the right balance. To carry this out, you should add the deposits in transit (any amount or deposit that has been recorded by the company but is still pending on the banks side); minus any outstanding checks (checks that have been written down and registered in the company’s cash account but have not yet cleared the bank account); and add/deduct certain bank errors (mistakes made by the bank while recording the transactions) that might exist.
The errors might be of the following nature such as entering a wrong digit or completely missing out on a transaction. To identify such errors, you must compare the companys general ledger with the banks statement.
Adjusting The Cash Account
The subsequent stage involves the adjustment of the cash account.
In the business account, you can adjust the transactions by the addition of any interest or subtracting month-to-month charges or any overdraft expenses. The bank charges, the not sufficient funds (NSF) checks, and any mistakes in accounting must be taken into account by the person in charge.
This is essential in balancing the cash balance in the companys records with the bank statement. To make the above more comprehensive, bank charges are administration charges and expenses deducted for the bank’s handling of the business’s financial records action.
This can incorporate month-to-month charges or charges from overdrawing your record which should be deducted from your cash account. On the off chance that you have any revenue on your ledger balance, add those to the cash account, too.
Read more about cash flow management techniques.
Comparing The Final Balances
Once you finish with fixing and balancing the transactions as per the companys accounting records and the bank statements, make sure that both the amounts equal to one final same figure.
In case of the balances not being the same, you will have to repeat the whole process again and re-check the places where you might have missed taking note of the changes. After all the adjustments are equivalent, businesses get on to preparing journal entries for the acclimations as per the books to maintain a balance.
How Frequently Should You Reconcile With Your Bank Account?
Preferably, you should reconcile with your bank every time that you receive a bank statement. This is a regular task at intervals, such as at the end of the week or the month.
For huge businesses that conduct innumerable transactions; this might also be on a daily basis as the day comes to an end. The business should make sure that they have recorded all transactions up to the end of the bank statement before they begin any sort of reconciliation.
Since most of the facilities are digital today, banks may download their statements online through e-banking, which would make it easier and speed up the process to receive the statement as opposed to getting the statement and then physically entering all the mentioned information.
Why Should You Consider Automating Your Bank Reconciliation Process?
The following are the advantages of automating the method of bank reconciliation using accounting tools or software:
- Simple reconciliation; If you are using an accounting tool or software, it will assist you in preparing a statement automatically with the least amount of effort.
- An actual time and effort saver; It does not matter if the number of transactions ranges from 30 to 3000, the investment of efforts in the procedure is the same.
- To figure out and detect unrecognized transactions becomes easier; Transactions like bank interest or fees/charges are familiar once you use an automated tool.
How Profitbooks Can Help You?
ProfitBooks is easy to use, extremely smooth accounting tool software. It will allow you to make presentable invoices, help you track expenses and expenditures, and handle inventory even for those who do not have any accounting experience.
Sharing any details with your accountant or others is simple and convenient with this software. ProfitBooks provides you with several powerful accounting features and one of those makes managing a bank reconciliation statement quick and efficient.
No hassle or confusion to deal with as it will reduce the risks and errors that form in the process. It offers a straightforward and nitty-gritty technique for the reconciliation of your organizations bank books with the bank explanation.
All the details and transactions would be present in an adequate manner for you to view and take care of. ProfitBooks makes sure that your accounting experience is not complicated or complex. It’s fast, basic, precise, and peaceful. It saves your time, labor, and finances that go into this process with its efficient services.
Render the accounting experience more fun by making use of our basic services. No more problems in the course of making a bank reconciliation statement. Just export the data, enter, and go!