Bank Reconciliation: Definition, Example, and Process

We don’t guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services. Check out our bookkeeping basics to continue setting up your books and building a solid financial foundation for your new business. Business.org explains more about what bank reconciliation is, why (and how often) you should do it, and how to make bank reconciliation both fast and accurate. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching.

Bank Reconciliation Statement FAQs

Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates. Bank reconciliation helps to identify errors that can affect estimated tax payments and financial reporting. Another possibility that may be causing problems is that the dates covered by the bank statement have changed, so that some items are included or excluded. This situation should only arise if someone at the company requested the bank to alter the closing date for the company’s bank account. If so, these entries will not appear in the bank reconciliation statement prepared at the end of the current month. The entries in the statement stop being the cause of discrepancies after a few days.

More specifically, a bank reconciliation means balancing your bank statements with your bookkeeping. To create a bank reconciliation, you will need to gather your bank statements and reconcile them with your accounting records (ledger). It would, for example, list outstanding cheques (ie., issued cheques that have still not been presented at the bank for payment). Discrepancies in bank reconciliations can arise from data processing errors or delays and unclear fees at the bank. Unpredictable interest income may also be a challenge when calculating financial statements, which can lead to challenges during a bank reconciliation.

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If they are still not equal, you will have to repeat the process of reconciliation. (f) The cash book does not contain a record of bank charges, $70, raised on 31 May. The items therein should be compared to the new bank statement to check if these have since been cleared. Or maybe you scheduled a rent payment and listed what is a voucher entry in accounting it in your chart of accounts as usual, but the notification that your payment bounced went to your spam folder.

Or, if you use accounting software to track your business’s finances and generate financial statements, the software should have a built-in method to speed up bank reconciliation. Keeping accurate financial statements is the easiest way to simplify your bank reconciliation process. FreshBooks accounting software helps you track income and expenses and generate reports and financial statements. Try FreshBooks for free to streamline your tax preparation and bank reconciliations today.

Add book transactions to your bank balance

1. Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates.
2. This includes everything from major fraud and theft to accounting miscalculations, insufficient funds, and incomplete or duplicated payments.
3. In cases where you discover discrepancies that cannot be explained by your financial statements, it’s best to contact your bank.
4. This is where your accounting software can help you reconcile and keep track of outstanding checks and deposits.
5. With bank reconciliation, you and your stakeholders can make decisions based on your bank records and financial statements, understanding both are accurate.

Similarly, some checks credited to the ledger account will probably not have been processed by the bank prior to the bank statement date. When you’re performing bank reconciliation, you’re basically following the same process as balancing a checkbook—you’re just doing it on a business-wide scale instead of a personal one. After including all the amounts identified in Step 3, your statements should display the same final balance.

A monthly reconciliation helps to catch and identify any unusual transactions that might be caused by fraud or accounting errors, especially if your business uses more than one bank account. A bank reconciliation statement is a financial document that summarizes your bank account transactions and internally recorded transactions, showing that the two records match. You don’t necessarily have to create a bank reconciliation statement every time you reconcile your accounts—if you perform bank reconciliation every day, you probably shouldn’t. Otherwise, though, statements are a good way to stay on top of your business’s finances. A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed.

Companies prepare bank reconciliation statements as a comprehensive accounting comparison tool. A company can ensure that all payments have been processed accurately by comparing their internal financial records against their bank account balance. Bank reconciliation statements are also important for alerting a company in case of fraud or error.