How to Do a Bank Reconciliation: Step-By-Step Process

More than 4,200 companies of all sizes, across all industries, trust BlackLine to help them modernize their financial close, accounts receivable, and intercompany accounting processes. These items are typically service fees, overdraft fees, and interest income. You’ll need to account for these fees in your G/L in order to complete the reconciliation process. Those payments are recorded in your G/L, but they have yet to hit the bank.

On the other hand, for companies with a low level of bank activity, not preparing bank reconciliations is also an option. The unrecorded differences may have other items as well, such as errors in the bank statement or bank book, dishonored checks, interest received, etc. Unrecorded differences may also include direct debits and standing orders that get automatically charged at a specific date.

They can also be used to identify fraud before serious damage occurs and can prevent errors from compounding. Bank reconciliation statements are tools companies and accountants use to detect errors, omissions, and fraud in a financial account. Bank reconciliation is a simple and invaluable process to help manage cash flows.

The bank may send you a bank statement at the end of each month, every week, or even at the end of each day in case of businesses having a huge number of transactions. The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. An outstanding cheque refers to a cheque payment that has been recorded in the books of accounts of the issuing company. But, the cheque has not yet been cleared by the bank as a deduction from the company’s cash balance.

If it’s a missing check withdrawal, it’s possible that it hasn’t been cashed yet or wasn’t cashed by the statement deadline. 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.

Similarly, they may consist of deposits that other parties deposit into the bank account without notifying the company. Unrecorded items are different from timing differences as the company needs to record these differences in its bank book as well. In many cases, you will notice slight differences in the cash accounts between your bank statement and accounting records that can be easily reconciled. The reasons for this can include bank-only transactions that may have impacted the ending balance, such as interest income or outstanding checks that haven’t been processed yet. The former will only be shown on the bank statement, while the latter will only be reflected on your internal accounting records. Reconciling bank statements with cash book balances helps you, as a business, to know the underlying causes that lead to such differences.

Your All-Encompassing Guide to Bank Reconciliations

Ignite staff efficiency and advance your business to more profitable growth. Therefore, such adjustment procedures help in determining the balance as per the bank that goes into the balance sheet. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. BlackLine partners with top global Business Process Outsourcers and equips them with solutions to better serve their clients and achieve market-leading automation, efficiencies, and risk control. By outsourcing, businesses can achieve stronger compliance, gain a deeper level of industry knowledge, and grow without unnecessary costs. Stay up to date on the latest corporate and high-level product developments at BlackLine.

Among
other tools used to accomplish this, preparing accounting reconciliations represents one
of the more important ones. As a small business owner you may think that
reconciliations are not such important, but tedious and time-consuming? First, preparing
reconciliations on a regular basis helps ensure that cash is not stolen from
your business.

Bank Reconciliation Statement Template

Streamline and automate detail-heavy reconciliations, such as bank reconciliations, credit card matching, intercompany reconciliations, and invoice-to-PO matching all in one centralized workspace. Bank reconciliation accounting is a lot more in-depth than this sounds though. It can be tedious, even difficult to check all these records and calculations, and even still, nobody’s perfect. That being said, modern accounting software makes the process much easier. For instance, the bank charged your business $30 in service fees, but it also paid you $5 in interest. The easiest way to find these adjustments when completing a bank reconciliation is to look at the bank fees.

• Outstanding checks, on the other hand, are checks that have been issued by your company to creditors but the payments have not yet cleared your bank account.
• If not, add the missing deposits to your records and your total account balance.
• Accountants will substantiate the transactions recorded in the general ledger by matching that data to the bank statements collected from the bank.
• With the Deskera Books platform, you’re able to make comparisons between the company’s sales and purchases and your bank record within seconds, without having to lift a finger.
• For example, say ABC Holding Co. recorded an ending balance of $500,000 on its records.

Our cloud software automates critical finance and accounting processes. We empower companies of all sizes across all industries to improve the integrity of their financial reporting, achieve efficiencies and enhance real-time visibility into their operations. Working capital, cash flows, collections opportunities, and other critical metrics depend on timely and accurate processes.

Resources for Your Growing Business

It’s important to document and track pending deposits or checks issued, especially because banks do not see these transactions until they’re cashed and cleared. Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them. The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books.

When performing a bank reconciliation, begin by adding positive transactions. An example of a positive transaction would be interest income earned from your bank best online bookkeeping classes of 2023 throughout the period (usually one period equals one month). Next subtract negative transactions such as bank service charges from your book cash balance.

What is a Bank Reconciliation?

To successfully complete your bank reconciliation, you’ll need your bank statements for the current and previous months as well as your company ledger. An online template can help guide you, but a simple spreadsheet is just as effective. It must ensure that the bank book balance is taken for the last date of the previous month or the month for which the bank statement is considered.

We’ll take bookkeeping completely off your hands (and deal with the bank reconciliations too). For some entrepreneurs, reconciling bank transactions creates a sense of calm and balance. If you’re in the latter category, it may be time to think about hiring a bookkeeper who will do the reconciling for you. When they draw money from your account to pay for a business expense, they could take more than they record on the books. Ideally, you should perform a bank reconciliation every time your bank sends you a statement.

Deposits in transit are amounts that are received and recorded by the business but are not yet recorded by the bank. Below is a video explanation of the bank reconciliation concept and procedure, as well as an example to help you have a better grasp of the calculation of cash balance. Bank reconciliations are used to identify any errors or attempts at fraud. At a minimum, the bank reconciliation should be done within a few days after the end of each month. However, with the bank’s electronic records readily accessible, the bank reconciliation should be done more frequently. Read this blog next to learn more about how your F&A organization can achieve fully automated bank reconciliations.