Bank Reconciliation Statement: Examples and Formula

The bank reconciliation process is a means of ensuring that the cash book of the business is reconciled to the bank statement provided by the bank. When you do a bank reconciliation, you first find the bank transactions that are responsible for your books and your bank account being out of sync. You only need to reconcile bank statements if you use the accrual method of accounting. This is to confirm that all uncleared bank transactions you recorded actually went through. Sometimes your current bank account balance is not a true representation of cash available to you, especially if you have transactions that have not settled yet.

Simplify bank reconciliations with automated expense tracking

One of the most common causes of discrepancies in bank reconciliations is delays in deposit and transaction processing. Checks sent or received at the end of the day, or toward the end of the month, may be subject to delay which will prevent them from being included on the bank statement. Accounting for these delays is key to reconciling the total amounts on the company’s financial statement and the bank statement. Accurate cash flow is essential for keeping a business running smoothly, so it’s important to be aware of all incoming and outgoing cash.

Common errors and how to avoid them

Financial statements show the health of a company or entity for a specific above the line below the line financial concept period or point in time. The statements give companies clear pictures of their cash flows, which can help with organizational planning and making critical business decisions. Automation can solve the problem of time-consuming manual reconciliation and reduce errors.

Compare Statements

1. These checks are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment.
2. In cases where you discover discrepancies that cannot be explained by your financial statements, it’s best to contact your bank.
3. These fees are charged to your account directly, and reduce the reflected bank balance in your bank statement.
4. Whereas, credit balance as the cash book indicates an overdraft or the excess amount withdrawn from your bank account over the amount deposited.

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. 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. Reconciliation of bank statements is the process of comparing the transactions recorded in the company’s accounting records with the transactions listed on the bank statement.

There are times when the bank may charge a fee for maintaining your account, which will typically be deducted automatically from your account. Therefore, when preparing a bank reconciliation statement you must account for any fees deducted from your account. You need to determine the underlying reasons responsible for any mismatch between balance as per cash book and passbook before you record such changes in your books of accounts. When your business receives checks from its customers, these amounts are recorded immediately on the debit side of the cash book so the balance as per the cash book increases. However, there may be a situation where the bank credits your business account only when the checks are actually realised.

If any discrepancies or fraudulent charges are identified, the required changes are made to the balance sheet. A bank reconciliation reconciles the bank statement with the company’s bank account records. A bank reconciliation consists of a business’s deposits, withdrawals, expenses, and other activities directly impacting your bank account during a particular period. The purpose of this comparing and matching process is to ensure that discrepancies are identified and corrected. The information on your bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month. Compare the ending balance of your accounting records to your bank statement to see if both cash balances match.

After you have compared the deposits and withdrawals, determine any missing transactions. Bench simplifies your small business accounting by combining intuitive software that automates the busywork with real, professional human support. There will be very few bank-only transactions to be aware of, and they’re often grouped together at the bottom of your bank statement. These checks are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment. After adjusting all the above items what you’ll get is the adjusted balance of the cash book.