Bank Reconciliations: Everything You Need to Know Bench Accounting

An online template can help guide you, but a simple spreadsheet is just as effective. Financial statements show the health of a company or entity for a specific period or point in time. Accurate financial statements allow investors to make informed decisions. The bookkeeping tests statements give companies clear pictures of their cash flows, which can help with organizational planning and making critical business decisions. In this case, the reconciliation includes the deposits, withdrawals, and other activities affecting a bank account for a specific period. The entries in the statement stop being the cause of discrepancies after a few days.

Checks sent or received at the end of the day, or toward the end of the month, may be subject to delay which will prevent them from being included on the bank statement. Accounting for these delays is key to reconciling the total amounts on the company’s financial statement and the bank statement. Accurate cash flow is essential for keeping a business running smoothly, so it’s important to be aware of all incoming and outgoing cash. A bank reconciliation is the process by which a company compares its internal financial statements to its bank statements to catch any discrepancies and gain a clear picture of its real cash flow. After recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month. This statement is used by auditors to perform the company’s year-end auditing.

Adjustments to books balance:

Using this simple process each month will help you uncover any differences between your records and what shows up on your bank statement. The purpose of reconciling bank statements with your business’ cash book is to ensure that the balance as per the what is gross pay and how is it calculated passbook matches the balance as per the cash book. Remember that transactions that aren’t accounted for in your bank statement won’t be as obvious as bank-only transactions.

Who’s responsible for bank reconciliations?

How you choose to perform a bank reconciliation depends on how you track your money. Some people rely on accounting software or mobile apps to track financial transactions and reconcile banking activity. Others use a paper checkbook, and balance it each month, to keep a record of any written checks and other transactions. You can also opt to use a simple notebook or spreadsheet for recording your transactions. The bank will debit your business account only when they’ve paid these issued checks, meaning there is a time delay between the issuing of checks and their presentation to the bank.

1. They may not be fun, but when you do them on a regular basis you protect yourself from all kinds of pitfalls, like overdrawing money and becoming a victim of fraud.
2. This document will make auditors aware of the reconciled information at a later date.
3. An outstanding check refers to a check payment that has been recorded in the books of accounts of the issuing company, but has not yet been cleared by the bank as a deduction from the company’s cash balance.
4. An NSF (not sufficient funds) check is a check that has not been honored by the bank due to insufficient funds in the entity’s bank accounts.

Add book transactions to your bank balance

And if you’re consistently seeing a discrepancy in accounts receivable between your balance sheet and your bank, you know you have a deeper issue to fix. Learn how to build, read, and use financial statements for your business so you can make more informed decisions. If you find any bank adjustments, record them in your personal records and adjust the balance accordingly.

This can include large payments and deposits or personal accountant notifications of suspicious activity from your bank. In these situations, it’s a good idea to perform an immediate reconciliation. By comparing your company’s internal accounting records to your bank statement balance, you can confirm that your records are accurate and analyze the reasons behind any potential discrepancies. After all reconciliation adjustments, the final correct cash balance captured in the company accounting records and on its balance sheet as at 30 September 20XX was $2,000. For example, say ABC Holding Co. recorded an ending balance of $500,000 on its records.

Compare the Deposits

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. 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. Journal entries, also known as the original book of entries, refer to the process of recording transactions as debits and credits, and once these are recorded, the general ledger is prepared. Such errors are committed while recording the transactions in the cash book, so the balance as per the cash book will differ from the passbook.

Since these items are generally reported to the company before the bank statement date, they seldom appear on a reconciliation. Examples include deposited checks returned for non-sufficient funds (NSF) or notes collected on the depositor’s behalf. When completed, the reconciliation should show the correct cash balance. There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them. Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control.