Guide to Bank Reconciliations and Catch-Ups

Adjusting the cash balance ensures your ledger’s balance and the bank statement balance will match. Adjust the balance on the bank statements to the corrected balance. For doing this, you must add deposits in transit, deduct outstanding checks and add/deduct bank errors. For governments that use the County as their treasurer, bank reconciliations would refer to the reconciliation of the government’s accounting records to the county treasurer’s report. The first step in performing a bank reconciliation is to review the bank statement for any discrepancies or unidentified transactions. This includes reviewing all deposits, withdrawals, fees, and other bank charges made.

When the two figures are exactly matched, you will have “reconciled” your bank account. However, if the figures don’t match, then the bank account is considered to be “unreconciled”. An underappreciated effect of the process is the increased ability to accelerate collections due to surfacing information about late payments. Ideally, you should reconcile your bank account 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. Match the deposits in the business records with those in the bank statement.

For companies with high transaction volumes, multiple bank accounts or multiple currencies, bank reconciliation can be a time-consuming process. NetSuite Cash Management can automate a crucial part of this process — the manual comparison of bank data with companies’ accounting system data. NetSuite users can automatically import bank data, saving time and improving accuracy. For instance, the MD Restaurant Group, a chain based in Illinois, is using NetSuite’s bank reconciliation functionality to compare financials from 19 different entities. A hypothetical San Francisco home contractor, By the Bay Contracting, is doing a reconciliation at the end of January. By the Bay’s bank account shows $106,800 but there is $120,000 in cash on the company’s books.

What Is Bank Reconciliation?

If the company incorrectly recorded a transaction, the book balance must be adjusted on the bank reconciliation and a correcting entry must be journalized and posted to the general ledger. This error is a reconciling item because the company’s general ledger cash account is overstated by $63. Because reconciling items that affect the book balance on a bank reconciliation have not been recorded in the company’s books, they must be journalized and posted to the general ledger accounts. The $1,565 credit memorandum requires a compound journal entry involving four accounts. Cash is debited for $1,565, bank fees expense is debited for $25, notes receivable is credited for $1,500, and interest revenue is credited for $90. A credit memorandum attached to the Vector Management Group’s bank statement describes the bank’s collection of a $1,500 note receivable along with $90 in interest.

Let’s say you check your records at the end of a certain period, and while calculating your total figures and cross-checking them with your bank statement, something doesn’t add up. There’s a mismatch between your cash balance and your bank statement. While this is common, you have to identify these differences and reconcile them to ensure your transactions match. With accrual accounting, your books may well reflect revenue that you don’t yet have in your account. They also may have errors, such as duplicate listings of transactions, missing entries, or transcribed numbers. You need to reconcile your bank statements to figure out an accurate financial picture.

What is the purpose of a bank reconciliation statement?

In addition to ensuring correct cash records, the bank reconciliation process also helps in keeping track of the occurrence of any form of fraud. Such insights would help you as a business to control cash receipts and payments in a better way. To start with, businesses can adopt bank reconciliation templates to match bank statements with the cash book. Spreadsheet-based bank reconciliation template is free and easy to use.

Hence, businesses must look to improve their bank reconciliation process to make it faster and more accurate. Regularly creating a bank reconciliation statement allows you to find errors by comparing your company ledger with your bank statement. Check your ledger’s recorded deposits, withdrawals and cleared checks against those listed on the bank statement. Ensure all of the amounts match up, and investigate any discrepancies.

The change to the balance in your bank account will happen “naturally”—once the bank processes the outstanding transactions. This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled.

Errors Made by Your Business or your Bank

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. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. Once you have incorporated the adjustments in the bank reconciliation statement, you have to ensure that the totals of both sides mentioned at the bottom match. Therefore, when your balance as per the cash book does not match with your balance as per the passbook, there are certain adjustments that you have to make in order to balance the two accounts. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly.

At NOW CFO, we want all our clients to have financial data that is accurate, timely, relevant, and insightful. If a business is not caught up on their books, none of the future reporting can be accurate. Something as important as a cashflow forecast cannot be built an if you are behind on your financials, which is why our consultants will always be sure that you and your financials are up to date and accurate.

Once the journal entries are recorded, the general ledger is prepared. Thus, such debits made by the bank directly from your bank account lead to a difference between the balance as per cash book and the balance as per the passbook. However, there may be a situation where the bank credits your business account only when the cheques are actually realised.

What do you mean by bank reconciliation?

After reviewing all deposits and withdrawals, adjusting the cash balance and accounting for interest and fees, your ledger’s ending balance should match the bank statement balance. If the two balances differ, you’ll need to look through everything to find any discrepancies. Timing differences between when a transaction is recorded in the accounting records and when it affects the bank account. For example, some of these reconciling items would include deposits in transit, outstanding items or open period items. Additionally, Chaser’s outsourced credit control service means you can keep on top of your debtors and save valuable time and money, while improving your cash flow and customer relationships. An accounting software and dedicated company that really takes into consideration each customer and client, it’s designed to make your bank reconciliations so much easier.

However, there can be situations where your business has overdrafts at the bank. Bank reconciliation is so important because it catches a whole range of potential problems for your business. Our experts have been helping you master your money for over four decades.

Why is it important to reconcile your bank statements?

In other words, the adjusted balance as per the bank must match with the adjusted balance as per the cash book. In addition, there may be cases where the bank has not cleared the cheques, however, the cheques have been deposited by your business. Therefore, the bank needs to add back the cheque’s amount to the bank balance. Bank reconciliation is undertaken in order to ensure that your balance as per the bank statement is correct. At times, your business entity may omit or record incorrect transactions for cheques issued, cheques deposited, the wrong total, etc. Therefore, you record no entry in the business’ cash book for the above items.

• At NOW CFO, we want all our clients to have financial data that is accurate, timely, relevant, and insightful.
• Knowing how to do bank reconciliation effectively will ultimately ensure that you have the right amount of money to go forward with.
• It also made a $2,000 deposit in the bank’s night depository after banking hours on June 30.
• In such a case, your bank has recorded the receipts in your business account at the bank.
• Businesses that do a high volume of daily transactions may want to reconcile at the end of each day to stay on top of the process and to catch problems promptly.
• In order to prepare a bank reconciliation statement, you need to obtain the current as well as the previous month’s bank statements and the cash book.

Businesses maintain a cash book to record both bank transactions as well as cash transactions. The cash column in the cash book shows the available cash while the bank column retained earnings equation shows the cash at the bank. Best practices in bank reconciliation vary from business to business, especially as a company grows and its operations become more complex.

‘It’s a match!’: A simple guide on how to do bank reconciliation

Checks you’ve issued but aren’t cleared should be adjusted in your bank statement. Outstanding checks from previous months should be accounted for until they are cleared, or you could choose to cancel the check and issue another one. Bank reconciliation statements can help identify accounting errors, discrepancies and fraud. For instance, if the company’s records indicate a payment was collected and deposited, yet the bank statement does not show such a deposit, there may have been a mistake or fraud.

As a result, the balance as per the cash book differs from the passbook. At times, the balance as per the cash book and passbook may differ due to an error committed by either bank or an error in the cash book of your company. Thus, such a situation leads to the difference between bank balance as per the cash book and balance as per the passbook. Whereas, credit balance as the cash book indicates bank overdraft or the excess amount withdrawn from your bank account over the amount deposited. Go through your bank statement to see if you’ve missed anything; factor in payments you may have received but failed to record in your ledger.

A check previously recorded as part of a deposit may bounce because there are not sufficient funds in the issuer’s checking account. The Vector Management Group’s bank statement includes an NSF check for $345 from Hosta, Inc. Banks often require customers to pay monthly account fees, check printing fees, safe‐deposit box rental fees, and other fees.

Every business needs accurate bookkeeping, and one of the core activities that goes into maintaining accurate books is periodic bank reconciliation. A foundational part of accrual accounting, bank reconciliation is the process of making sure all of a business’s recorded transactions match those in the accounts. The first entry records a debit to the cash account and a credit to the bank reconciliation account.