What Is a Bank Reconciliation Statement, and How Is It Done?

With HighRadius, you can streamline and enhance the bank and account reconciliation process for your business. By leveraging the power of artificial intelligence, you can automate your processes and achieve 95% journal posting automation. After checking all the critical items, adjust the cash balances to account for all expenses and transactions. Bank reconciliation is a subset of the monthly, quarterly, and yearly close process and is not generally done on its own.

Preparing a Bank Reconciliation Statement

Consider an accounting team at a mid-sized company that needs to perform bank reconciliation on a monthly basis. This task is essential to ensure that their financial records are accurate and up-to-date. A bank reconciliation should be prepared periodically to ensure accurate financial records. This practice is essential for maintaining the financial health and integrity of your business.

• This bank statement is an example of the transactions that occurred during the month.
• Checks outstanding as of the beginning of the month appear on the prior month’s bank reconciliation.
• Journal entries are required to adjust the book balance to the correct balance.
• One is making a note in your cash book (faster to do, but less detailed), and the other is to prepare a bank reconciliation statement (takes longer, but more detailed).
• Ensure that the income and expenses on the balance sheet match the bank statements to identify any unaccounted expenses or deposits.
• The reason why companies must categorize the differences is that the treatment for both is different.

Adjusting Journal Entries

This relatively straightforward and quick process provides a clear picture of your financial health. Consider reconciling your bank account monthly, whether you set aside a specific day each month or do it as your statements arrive. 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.

Bank Reconciliations: Everything You Need to Know

Bank reconciliation in accounting is an important process that ensures your accounts all match and no financial issues slip through the cracks. Finally, fraudulent activity in a bank account can cause problems with reconciliation. But catching theft, embezzlement, and other forms of fraud are also some of the main reasons for reconciling https://www.bookstime.com/articles/capital-budgeting accounts in the first place. The best way to deal with these is simply to ensure that your own books are accurate. If there is a large volume of cheques outstanding, you may need to reconcile more often to ensure that you verify each one has cleared. Reconciliation in banking used to be a tedious and time-consuming manual task.

• Using the source record of every transaction at the time of reconciliation, will give the most accurate results.
• If you notice discrepancies in your accounts that can’t be resolved in other ways, you might need to consider this possibility.
• Similarly, your business’s cash account will likely need some adjustments.
• If you’re interested in automating the bank reconciliation process, be sure to check out some accounting software options.
• Preparing bank reconciliation requires companies to follow a 5-step process.

The bank reconciliation process might seem simple on the surface — and it often is. Many business owners simply assume the numbers from their bank and accounting software are correct. While it’s which of the following is not a step in preparing a bank reconciliation? highly likely that they are, issues do occur, and it never hurts to double check. In this article, we’ll explore the bank reconciliation process in detail and help you get started today.

• Normally, deposits in transit occur only near the end of the period covered by the bank statement.
• If a company has more than one bank accounts, it will need to carry out the process for each account separately.
• However, there may be a situation where the bank credits your business account only when the cheques are actually realised.
• For instance, the bank charged your business $30 in service fees, but it also paid you $5 in interest.

First, check your two cash balances

How do you prepare a bank reconciliation statement?

• For interest-bearing accounts, a bank adjustment could be the amount of interest you earned over the statement period.
• The company found there are $3,000 deposits in transit and $2,000 outstanding checks.
• Therefore, the bank book is an important document in the accounting process of a company.
• Deposits in transit are also checks that the company has presented to the bank, but the check did not clear before the preparation of the bank statement.
• However, such deposited cheques or discounted bills of exchange drawn by your business entity get dishonored on the date of maturity.