Bank Reconciliations: Everything You Need to Know Bench Accounting

Let’s take a look at a hypothetical company’s bank and financial statements to see how to conduct a bank reconciliation. It’s recommended for a company to perform a bank reconciliation at least once a month. If your company receives bank statements more frequently, for example, every week, you may also choose to do a bank reconciliation for every statement you receive. 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). When you record the reconciliation, you only record the change to the balance in your books.

Detecting Fraud

Once you have identified all the differences between the two statements, identify the source of the discrepancy. Common sources include deposits in transit that have not yet been deposited in your bank account, as well as bank fees that have been withdrawn by your bank but may have been missed in your company records. You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business, as well as any expenses paid by the business. This includes everything from wages and salaries paid to employees to business purchases like equipment and materials. Bank statements also show expenses that may not have been included in financial statements, such as bank fees for account services.

This is especially common in cases where the check is deposited at a different bank branch than the one at which your account is maintained, which can lead to the difference between the balances. (c) A deposit of $5,000 received by the bank (and entered in the bank statement) on 28 May does not appear in the cash book. If so, these entries will not appear in the bank reconciliation statement prepared at the end of the current month. 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.

Which of these is most important for your financial advisor to have?

The statements give companies clear pictures of their cash flows, which can help with organizational planning and making critical business decisions. This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task. For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items. Whether this is a smart decision depends on the volume of transactions and your level of patience.

1. The first step is to obtain a detailed statement from the bank, which includes information about checks cleared and rejected by the bank, transaction charges, and bank fees.
2. Performing immediate bank reconciliations for large cash amounts or suspicious transactions further increases your ability to catch fraud and error.
3. Bank reconciliation statements are often used to catch simple errors, duplications, and accidental discrepancies.
4. At times, your business may either omit or record incorrect transactions for checks issued, checks deposited, or the wrong total, etc.

However, there might be a situation where the receiving entity may not present the checks issued by your business to the bank for immediate payment. Next, check to see if all of the deposits listed in your records are present on your bank statement. The Substantiation software automates the reconciliation of general ledger and supporting balances. By using pre-configured templates, it simplifies the management of open items and enhances analytical capabilities.

How often should you reconcile your bank account ?

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. Reconciling your bank account should be done monthly to catch discrepancies early and keep financial records accurate. Businesses with high volume of transactions must reconcile their bank statements weekly or daily to manage cash flow efficiently. Keeping accurate financial statements is the easiest way to simplify your bank reconciliation process.

Adjusting the Bank Statement Balance

Performing regular bank reconciliations is key to keeping on top of your company’s financial health and paving the way for sustainable business growth. Bank reconciliation is the process of comparing accounting records to a bank statement to identify differences and make adjustments or corrections. In the case of personal bank accounts, like checking accounts, this is the process of comparing accounts receivable job description 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. 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.