To reconcile means to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another. More specifically, a bank reconciliation means balancing your posting to the general ledger bank statements with your bookkeeping. Bank reconciliation isn’t just important for maintaining accurate business finances—it also ensures your customer and business relationships remain strong. Regular bank reconciliation double-checks that all payments have been accurately processed. This includes payments by customers to your company and payments from your company to employees, contractors, and other goods and services providers. The more frequently you do a bank reconciliation, the easier it is to catch any errors.

NSF checks are an item to be reconciled when preparing the bank reconciliation statement, because when you deposit a check, often it has already been cleared by the bank. But this is not the case as the bank does not clear an NFS check, and as a result, the cash on hand balance gets reduced. These fees are charged to your account directly, and reduce the reflected bank balance in your bank statement.

For interest-bearing accounts, a bank adjustment could be the amount of interest you earned over the statement period. The balance recorded in the passbook or the bank statement must match the balance reflected in the customer’s cash book. It is up to you, the customer, to reconcile the cash book with the bank statement and report any errors to the bank.

Duplicate payments

If transactions on the bank statements are correct, you need to adjust your books. In this case, the bank hasn’t honored it due to insufficient funds from an entity’s account. That means it hasn’t been reflected in the bank statements, yet it’s recorded in your cash book, so you need to deduct it from your records.

Reconciling bank statements with cash book balances helps your business know the underlying causes of these balance differences. Once the underlying cause of the difference between the cash book balance and the passbook balance is determined, you can then make the necessary corrections in your books to ensure accuracy. Some bank services, including expedited payments, bank drafts, and in some types and properties of assets cases paper bank statements, may come with additional bank fees. If a company is unaware of the exact amount of these fees, they may not be included in the company’s financial records and will only be seen when they receive their bank statement.

Who are the parties involved in a bank reconciliation statement?

You have to go back and compare your records with the bank’s to try and figure out what went wrong so you can correct your records to match the banks. A bank reconciliation statement is only a statement prepared to stay abreast with the bank statement; it is not in itself an accounting record, nor is it part of the double entry system. Additionally, bank reconciliation statements brings into focus errors and irregularities while dealing with the cash. A bank may charge an account maintenance fee, typically withdrawn and processed automatically from the bank account. When preparing a bank reconciliation statement, a journal entry is prepared to account for fees deducted. Bank reconciliation statements are effective tools for detecting fraud, theft, and loss.

Required Information to Create a Bank Reconciliation Statement

This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task. When you do a bank reconciliation, how law firm accountants succeed you first find the bank transactions that are responsible for your books and your bank account being out of sync. Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly.

1. The bank statement submitted by the businessman at the end of May will not contain an entry for the check, whereas the cash book will have the entry.
2. After depositing the check, your bank immediately credited your account by $1000.
3. Keep up with Michelle’s CPA career — and ultramarathoning endeavors — on LinkedIn.
4. How you choose to perform a bank reconciliation depends on how you track your money.

Step 4: Make adjustments to the books

They might reconcile on a daily basis to make sure everything matches and all cash receipts hit the bank account. On the other hand, a small online store—one that has days when there are no new transactions at all—could reconcile on a weekly or monthly basis. If, on the other hand, you use cash basis accounting, then you record every transaction at the same time the bank does; there should be no discrepancy between your balance sheet and your bank statement. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled. The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account.