Bank Reconciliation Example: Simple Guide & Statement Template

That part of the accounting system which contains the balance sheet and income statement accounts used for recording transactions. Here are two examples to reinforce the bank’s use of debit and credit with regards to its customers’ checking accounts. You need to subtract both checks from your bank balance, as well as any other checks listed in your check register that haven’t cleared. The cash might not immediately reflect in the bank account when funds are transferred via credit card payments or wire transfers. With timely reconciliations in place, business can spot problems with cash flow by noticing how the inflows and outflows of cash are changing with time.

Compare the ending balance of your accounting records to your bank statement to see if both cash balances match. We strongly recommend performing a bank reconciliation at least on a monthly basis to ensure the accuracy of your company’s cash records. A monthly reconciliation helps to catch and identify any unusual transactions that might be caused by fraud or accounting errors, especially if your business uses more than one bank account.

Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee. A company prepares a bank reconciliation statement to compare the balance in its accounting records with its bank account balance. A bank reconciliation statement is a valuable internal tool that can affect tax and financial reporting and detect errors and intentional fraud. In the absence of proper bank reconciliation, the cash balances in your bank accounts could be much lower than expected, which may result in bounced checks or overdraft fees. The information on your bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month.

To safeguard this critical and tempting asset, a company should establish internal controls over its cash. Nanonets AI leverages advanced algorithms, such as NLP techniques and fuzzy matching, to rapidly compare transactions between bank statements and accounting records. This reduces time taken for manual reconciliation from hours to just minutes. After adjusting both records, the bank statement balance should equal the adjusted cash record balance.

Step 2: Compare deposits

Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Income from variable sources like interest and investment may be difficult to predict. As such, exact amounts may not be accurately included on financial statements before the reconciliation process. When the business receives its bank statement, it can use the final amounts of interest and investment income to make adjustments and reconcile its financial statements. Conducting regular bank reconciliation helps you catch any fraud risks or financial errors before they become a larger problem.

Where there are discrepancies, companies can identify and correct the source of errors. A bank reconciliation statement can help you identify differences between your company’s bank and book balances. The company reflected the payment it received from debtors in its cashbook, but the payment hasn’t yet reflected in the bank account. 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).

Timing Differences in Recording of Transactions

1. A liability account on the books of a company receiving cash in advance of delivering goods or services to the customer.
2. Checks which have been written, but have not yet cleared the bank on which they were drawn.
3. Consider reconciling your bank account monthly, whether you set aside a specific day each month or do it as your statements arrive.
4. When preparing a bank reconciliation statement, a journal entry is prepared to account for fees deducted.

A bank reconciliation statement is a summary that shows the process of reconciling an organization’s bank account records with the bank statement. It lists the items that make up the differences between the bank statement balance and the accounting system balance, and explains how these differences were resolved. By comparing the two statements, Greg sees that there are $11,500 in checks for four orders of lawnmowers purchased near the end of the month.

You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business, as well as any expenses paid by the business. This includes everything from wages and salaries paid to employees to business purchases like equipment and materials. Bank statements also show expenses that may not have been included in financial statements, such as bank fees for account services. Check the balances pros and cons of going paperless of the bank statements and the cash balance in your books after you’ve adjusted all the transactions and compared them. If not, there may be checks outstanding or deposits in transit or you may need to perform another reconciliation.

Identify Discrepancies

Nanonets offers an automated reconciliation software solution to approach this essential task. We can single out the unreconciled transactions by eliminating the entries that can be traced on both records. An expense or a sale may have been overlooked and not added to the ledger, causing a balance difference between the book and the bank statement. When the amounts aren’t equal, you’ll need to verify the numbers, fix any errors, and repeat the reconciliation process to find out where the discrepancy is. Once the balances are equal, businesses need to prepare journal entries to adjust the balance per books. You’ll need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or any checks issued that have not yet been presented for payment.

Any checks that have been issued that haven’t cleared the bank must be accounted for under your bank balance column. Properly reconciled bank statements are required for accurate tax reporting and can help avoid penalties or issues during audits. After adjustments, the bank statement and company records should be reconciled and match. A bank recon helps you manage your cash flow, enabling you time your income to ensure you have sufficient funds for expenses.

You will know about this only when you receive the bank statement at the end of the month. As a result, your balance as per the passbook would be less than the balance as per the cash book. In this instance, your bank has recorded the receipts in your business account at the bank, while you haven’t recorded this transaction in your cash book. As a result, the balance shown in the bank passbook would be more than the balance shown in your company’s cash book. The purpose of preparing a bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. These outstanding deposits must be deducted from the balance, as per the cash book, in the bank reconciliation statement.

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. If this checking account meaning occurs, you simply need to make a note indicating the reasons for the discrepancy between your bank statement and cash book. 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 out, then the bank reconciliation statement can be prepared.

Compare your bank statements

Ideally, you should run a reconciliation each time you receive the statement from your bank. The bank may send you a bank statement at the end of each month, each week, or, if your business has a large number of transactions, they may even send one at the end of each day. To reconcile your bank statement with your cash book, you’ll need to ensure that the cash book is complete and make sure that the current month’s bank statement has also been obtained.