Bank Reconciliation
A statement of bank reconciliation is a document that complements the cash balance on a company’s financial balance sheet to the corresponding amount on its bank ledger.
Accommodating the two accounts helps determine if accounting changes are needed. These documents are completed at regular intervals to ensure that the company’s cash records are correct. Detecting fraud and any cash manipulations are an example of how helpful bank reconciliation can be.
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The Purpose of Bank Reconciliation

Obtaining a bank reconciliation record offers several advantages including:

  • Assist in detecting banking errors such as double payments, missed receipt payments, transfer flaws, calculation errors, funds misappropriation in any given period, etc.
  • Pursuing and adding bank fees and monetary penalties in the books.
  • Spot fraudulent transactions, expenses scandals, and theft.
  • Keeping track of accounts payable and receivables of the business.
Using a paid accounting or bookkeeping software to do bank reconciliation is easier and error-free. Bank transactions are imported automatically allowing you to match and categorize a large number of transactions with the click of a button. A bookkeeper that can use the system properly can ensure that the bank reconciliation process advances in an efficient and controllable manner.
Importance of Bank Reconciliation

Regardless of the method utilized in the modeling of the bank reconciliation, it can help in the identification of errors in the accounting records of the company or the bank.

Money is the most vulnerable asset of an entity. Generating a bank reconciliations document yield the necessary control mechanism to assist in securing the valuable resource through uncovering irregularities such as unauthorized bank withdrawals. Though, in order for the control process to work effectively, it is essential to segregate the duties of the company' accountant and authorizing of the bank transactions and those responsible for preparing and monitoring bank reconciliation statements.

When comparing the bank statement balance with the bank balance appearing in the accounting records, it provides added comfort that the bank transactions have been recorded correctly in the company records.

Preparation of bank reconciliation on a monthly basis assists in the regular monitoring of cash flows of a business.
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How Often Should You Reconcile Your Bank Account?

A reconciliation of a bank account should preferably take place each time you receive a statement from your bank. This is often done at the end of every month, weekly, and even at the end of each day by businesses that have a large number of transactions.

Prior to undertaking the reconciliation process, the business should ensure that they have recorded all transactions up to the end of your bank statement. Online banking services used by businesses nowadays can download the bank statements for the regular reconciliation process rather than having to manually enter the information.
How Do You Reconcile a Bank Statement?

The process of reconciling a bank statement can be streamlined, the account balance as reported by the bank as compared to the general ledger of a business.

A cash book is usually maintained by businesses to record both bank transactions as well as cash transactions. The cash book contains a cash column that shows the available cash while the bank column shows the cash at the bank.

Similarly, the bank, too, keeps an account for every customer. The deposits are recorded on the credit side in the bank books, while the withdrawals are recorded on the debit side. The account statement is sent in an email by the bank to its customers every month or at regular intervals.

Sometimes these balances do not match. The business needs to identify the reasons for the discrepancy and reconcile the differences. Businesses undertake this to confirm every item is accounted for and the ending balances match. A reconciliation statement known as the bank reconciliation statement is prepared for this purpose.
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A statement of bank reconciliation is a document that complements the cash balance on a company’s financial balance sheet to the corresponding amount on its bank ledger.
Accommodating the two accounts helps determine if accounting changes are needed. These documents are completed at regular intervals to ensure that the company’s cash records are correct. Detecting fraud and any cash manipulations are an example of how helpful bank reconciliation can be.
Image
The Purpose of Bank Reconciliation

Obtaining a bank reconciliation record offers several advantages including:

  • Assist in detecting banking errors such as double payments, missed receipt payments, transfer flaws, calculation errors, funds misappropriation in any given period, etc.
  • Pursuing and adding bank fees and monetary penalties in the books.
  • Spot fraudulent transactions, expenses scandals, and theft.
  • Keeping track of accounts payable and receivables of the business.
Using a paid accounting or bookkeeping software to do bank reconciliation is easier and error-free. Bank transactions are imported automatically allowing you to match and categorize a large number of transactions with the click of a button. A bookkeeper that can use the system properly can ensure that the bank reconciliation process advances in an efficient and controllable manner.
Image
Importance of Bank Reconciliation

Regardless of the method utilized in the modeling of the bank reconciliation, it can help in the identification of errors in the accounting records of the company or the bank.

Money is the most vulnerable asset of an entity. Generating a bank reconciliations document yield the necessary control mechanism to assist in securing the valuable resource through uncovering irregularities such as unauthorized bank withdrawals. Though, in order for the control process to work effectively, it is essential to segregate the duties of the company' accountant and authorizing of the bank transactions and those responsible for preparing and monitoring bank reconciliation statements.

When comparing the bank statement balance with the bank balance appearing in the accounting records, it provides added comfort that the bank transactions have been recorded correctly in the company records.

Preparation of bank reconciliation on a monthly basis assists in the regular monitoring of cash flows of a business.
Image
How Often Should You Reconcile Your Bank Account?

A reconciliation of a bank account should preferably take place each time you receive a statement from your bank. This is often done at the end of every month, weekly, and even at the end of each day by businesses that have a large number of transactions.

Prior to undertaking the reconciliation process, the business should ensure that they have recorded all transactions up to the end of your bank statement. Online banking services used by businesses nowadays can download the bank statements for the regular reconciliation process rather than having to manually enter the information.
Image
How Do You Reconcile a Bank Statement?

The process of reconciling a bank statement can be streamlined, the account balance as reported by the bank as compared to the general ledger of a business.

A cash book is usually maintained by businesses to record both bank transactions as well as cash transactions. The cash book contains a cash column that shows the available cash while the bank column shows the cash at the bank.

Similarly, the bank, too, keeps an account for every customer. The deposits are recorded on the credit side in the bank books, while the withdrawals are recorded on the debit side. The account statement is sent in an email by the bank to its customers every month or at regular intervals.

Sometimes these balances do not match. The business needs to identify the reasons for the discrepancy and reconcile the differences. Businesses undertake this to confirm every item is accounted for and the ending balances match. A reconciliation statement known as the bank reconciliation statement is prepared for this purpose.
Bank Reconciliation: A Step-by-Step Method
Typically at the end of each month, you receive a bank statement, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business. The statement also includes bank charges such as account servicing fees.
These steps can be followed to reconcile a bank statement:
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1. Comparing the Deposits

Deposits in the business records with those in the bank statement must be matched. The amount of each deposit recorded in the debit side of the bank column of the cashbook is then compared with the credit side of the bank statement. Similarly, the column showing the credit on the bank side is compared with the debit side of the bank statement. The items appearing in both the records should be marked.
2. Adjusting the Bank Statements

The balance on the bank statements needs to be adjusted to the corrected balance. To do this, deposits must be added in transit, outstanding checks are then deducted and bank errors added or deducted.

The amounts that are received and recorded by the business but are not yet recorded by the bank are referred to as Deposits in Transits. These reports must be added to the bank statement.

Outstanding checks are those that have been written and recorded in the cash account of the business but have not yet cleared the bank account. They need to be deducted from the bank balance. This often happens when the checks are written in the last few days of the month.

Mistakes made by the bank while creating the bank statement are known as bank errors. Common errors include entering an incorrect amount or omitting an amount from the bank statement. The cash account’s general ledger to the bank statement must be compared to spot the errors.
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3. Adjusting the Cash Account

Within the business account, it's possible to adjust the cash balance by adding interest or deducting monthly charges and overdraft fees.

To achieve this, businesses need to take into account the bank charges, Not Sufficient Funds (NSF) checks, and errors in accounting.

  • The service charges and fees deducted for the bank’s processing of the business’ checking account activity are referred to as Bank Charges. Monthly charges or charges from overdrawing your account can be included. They must be deducted from your cash account. Any interest earned on your bank account balance must be added to the income section of the cash account.
  • An NSF (not sufficient funds) check is a check that has not been honoured by the bank due to insufficient funds in the entity’s bank accounts. This means that the check total has not been deposited in your bank account and hence needs to be deducted from your cash account records.
  • If the cash account contains errors, this will result in an incorrect amount being entered or an amount being omitted from the records. If these errors are corrected, it will increase or decrease the cash account in the books.
4. Comparing the Balances

Once the balances as per the bank and the current books are adjusted, the adjusted amounts should be the same. If there is a discrepancy between the two, the process of reconciliation should be repeated again.

Businesses need to prepare journal entries when the balances are equal, for the adjustments to the balance per books.
Image
Typically at the end of each month, you receive a bank statement, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business. The statement also includes bank charges such as account servicing fees.
These steps can be followed to reconcile a bank statement:
Image
1. Comparing the Deposits

Deposits in the business records with those in the bank statement must be matched. The amount of each deposit recorded in the debit side of the bank column of the cashbook is then compared with the credit side of the bank statement. Similarly, the column showing the credit on the bank side is compared with the debit side of the bank statement. The items appearing in both the records should be marked.
Image
2. Adjusting the Bank Statements

The balance on the bank statements needs to be adjusted to the corrected balance. To do this, deposits must be added in transit, outstanding checks are then deducted and bank errors added or deducted.

The amounts that are received and recorded by the business but are not yet recorded by the bank are referred to as Deposits in Transits. These reports must be added to the bank statement.

Outstanding checks are those that have been written and recorded in the cash account of the business but have not yet cleared the bank account. They need to be deducted from the bank balance. This often happens when the checks are written in the last few days of the month.

Mistakes made by the bank while creating the bank statement are known as bank errors. Common errors include entering an incorrect amount or omitting an amount from the bank statement. The cash account’s general ledger to the bank statement must be compared to spot the errors.
Image
3. Adjusting the Cash Account

Within the business account, it's possible to adjust the cash balance by adding interest or deducting monthly charges and overdraft fees.

To achieve this, businesses need to take into account the bank charges, Not Sufficient Funds (NSF) checks, and errors in accounting.

  • The service charges and fees deducted for the bank’s processing of the business’ checking account activity are referred to as Bank Charges. Monthly charges or charges from overdrawing your account can be included. They must be deducted from your cash account. Any interest earned on your bank account balance must be added to the income section of the cash account.
  • An NSF (not sufficient funds) check is a check that has not been honoured by the bank due to insufficient funds in the entity’s bank accounts. This means that the check total has not been deposited in your bank account and hence needs to be deducted from your cash account records.
  • If the cash account contains errors, this will result in an incorrect amount being entered or an amount being omitted from the records. If these errors are corrected, it will increase or decrease the cash account in the books.
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4. Comparing the Balances

Once the balances as per the bank and the current books are adjusted, the adjusted amounts should be the same. If there is a discrepancy between the two, the process of reconciliation should be repeated again.

Businesses need to prepare journal entries when the balances are equal, for the adjustments to the balance per books.
Bank Reconciliation Procedure
  1. Compare the company’s list of issued checks and deposits on the bank statement to the checks shown on the statement to identify uncleared checks and deposits in transit.
  2. Add back any deposits in transit, using the cash balance shown on the bank statement.
  3. Any outstanding checks must be deducted.
  4. Use the company’s ending cash balance, any interest earned and notes receivable amount must be added.
  5. Bank service fees, penalties, and NSF checks must be deducted.
  6. Once the reconciliation is done, the adjusted bank balance should match with the company’s ending adjusted cash balance.
Looking for Bank Reconciliation services? Our team of professionals at InTune Outsourcing are ready to serve you. Call or email us today to find out how we can help your business.
  1. Compare the company’s list of issued checks and deposits on the bank statement to the checks shown on the statement to identify uncleared checks and deposits in transit.
  2. Add back any deposits in transit, using the cash balance shown on the bank statement.
  3. Any outstanding checks must be deducted.
  4. Use the company’s ending cash balance, any interest earned and notes receivable amount must be added.
  5. Bank service fees, penalties, and NSF checks must be deducted.
  6. Once the reconciliation is done, the adjusted bank balance should match with the company’s ending adjusted cash balance.
Looking for Bank Reconciliation services? Our team of professionals at InTune Outsourcing are ready to serve you. Call or email us today to find out how we can help your business.
Every SME Can Become Large
InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.
Every SME Can Become Large
InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.

About InTune Outsourcing Services

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InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.

Find Out More About Us


About InTune Outsourcing Services

Quick Link

Facebook


InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.

Find Out More About Us


About InTune Outsourcing Services


InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.

Find Out More About Us

Facebook