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How to Do a Bank Reconciliation: Step-By-Step 2024

Home / Bookkeeping / How to Do a Bank Reconciliation: Step-By-Step 2024

How to Do a Bank Reconciliation: Step-By-Step 2024

Bank errors are mistakes made by the bank while creating the bank statement. Common errors include entering an incorrect amount or omitting an amount from the bank statement. Compare the cash account’s general ledger to the bank statement to spot the errors.

  • All of this can be done by using online accounting software like QuickBooks.
  • The bank book of ABC Co. will be credited with the above amounts because they are all payments from the bank account.
  • Once the types of differences are identified and adjusted against their relevant balances, the balances should be compared again.

It can, in turn, help the company improve its bank processes and make them more efficient and effective. Therefore, bank reconciliation can help the company identify any weaknesses within the banking transaction controls. When a company writes a check, the company’s general ledger Cash account is credited (and another account is debited) using the date of the check. Therefore, a check dated June 29 will be recorded in the company’s accounts using the date of June 29, even if the check clears (is paid through) the company’s bank account one week later. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly.

Reconciliation makes the bank statement error-free and clears additional charges. Therefore, before closing the accounting chapter in the banking book, reconciliation checks whether the closing page hits green light i.e. ending is correct and safe. Similarly, if a businessman deposits any checks on the last day of the month, these cheques may be collected by his bank and shown on his bank statement three or four days later.

One response to “Preparation of Bank Reconciliation Statement”

In the case of personal bank accounts, like checking accounts, this is the process of comparing your monthly bank statement against your personal records to make sure they match. Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee. As mentioned above, timing differences do not require any adjustments in the bank book balance. Therefore, these items need to be part of the bank reconciliation statement only. For timing differences, the company must cancel out the effect of outstanding checks and deposits in transit. A bank reconciliation statement reconciles the bank statement with the company’s accounts.

  • This practical article illustrates the key points of why a bank reconciliation is important for both business and personal reasons.
  • Cash management software allows businesses to gather real-time cash positions across the organization, helping to make better business decisions based on accurate data.
  • He is the budgeting and family travel enthusiast behind Family Money Adventure.
  • However, there are situations where a bank reconciliation might be necessary at the earliest.
  • Miscellaneous debit and credit entries in the bank statements must be recorded on the balance sheet.

However, the depositor/customer/company debits its Cash account to increase its checking account balance. Note that Community Bank credits its liability account Customers’ Deposits (which includes the individual depositor’s checking account balance). As a result, Community Bank’s balance sheet will report an additional $10,000 in assets and an additional $10,000 in liabilities. When the bank debits a depositor’s checking account, the depositor’s checking account balance and the bank’s liability to the customer/depositor are decreased.

How do you prepare a bank reconciliation statement?

This is also known as unfavorable balance as per the cash book or unfavorable balance as per the passbook. These accounts should be closed and any recurring debits or deposits should be transferred to more-active accounts. These adjustments that may be missing from your G/L typically include service fees, overdraft fees, and interest income. Segregation of duties makes it possible to rectify errors at a better speed. Reconciliation also assists in monitoring the flow of cash in a business. Before the end of the month (i.e. time of BRS generation) if a company issues a cheque and it is not handed for payment, it would not be counted as debit amount.

#2 Identify the type of differences

This often happens when the checks are written in the last few days of the month. As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records. If you’re missing transactions in your personal records, add them and deduct the amount from your balance. If you’re finding withdrawals that aren’t listed on the bank statement, do some investigation. 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. But there is no harm in double-checking the bank statements with ledgers.


Check if the bank deposits and withdrawals match the records on the balance sheet. If there are any differences between the bank statement and the balance sheet, cross-check to identify the mistake’s source. Non-sufficient funds (NSF) checks are recorded as an adjusted book-balance line item on the bank reconciliation statement. As mentioned above, the process of comparing your cash book details with the records of your business’ bank transactions as recorded by the bank is known as bank reconciliation.

Bank reconciliations are made by a business to reconcile any differences between the bank statement of a business and its bank books. More importantly, bank reconciliation can play a crucial role in catching any fraudulent activity. For example, employees may exploit loopholes in the internal control of a company to their advantage. is there a difference between an expense and an expenditure Therefore, bank reconciliation is the best option that companies have of detecting or sometimes detecting the error before it’s too late. Bank Example 2 showed that the bank debits the depositor’s checking account to decrease the checking account balance (since this is part of the bank’s liability Customers’ Deposits).

How confident are you in your long term financial plan?

Once the types of differences are identified, they should be taken and adjusted against the relevant document balance. For example, the bank credited the business account for a transaction that did not relate to the account. Errors are generally rectified promptly if they are caused due to an error in the bank book. Apart from these types of differences, errors may also occur on either the business’ side of the records or the bank’s side of the records.

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