Bank Reconciliation: Definition, Example, and Process

Regularly creating a bank reconciliation statement allows you to find errors by comparing your company ledger with your bank statement. You should perform bank reconciliation at least every month—which is how often your bank sends a bank statement. A single 30-day period should give you a manageable number of transactions to compare between accounts.

Bank Fees

The end result is the adjusted cash balance, which ensures your ledger balance matches the bank statement balance. 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include deposits in transit that have not yet been deposited in your bank account, as well as bank fees that have been withdrawn by your bank but may have been missed in your company records. By comparing your company’s internal accounting records to your bank statement balance, you can confirm that your records are accurate and analyze the reasons behind any potential discrepancies. what is profitability ratio analysis Interest is automatically deposited into a bank account after a certain period of time.

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. 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. Bank reconciliation statements safeguard against fraud in recording banking transactions. Additionally, bank reconciliation statements brings into focus errors and irregularities while dealing with the cash. Making sure a company’s and its bank’s listed balances align is also a way to ensure the account has sufficient funds to cover company expenditures. The process also enables the company to record any interest payments the account has earned or fees the bank has charged.

Obtain copies of and compare pertinent records

He also finds $500 of bank service fees that hadn’t been included in his financial statement. Compare the business’s financial records to the bank statement to how to prepare adjusting entries accounting principles spot the errors. This can be accomplished by matching transactions, and then adding or deducting any transactions that do not align to balance the total amounts. Infrequent reconciliations make it difficult to address problems with fraud or errors when they first arise, as the needed information may not be readily available. Also, when transactions aren’t recorded promptly and bank fees and charges are applied, it can cause mismatches in the company’s accounting records.

1. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.
2. Examples include deposited checks returned for non-sufficient funds (NSF) or notes collected on the depositor’s behalf.
3. An NSF (not sufficient funds) check is a check that has not been honored by the bank due to insufficient funds in the entity’s bank accounts.
4. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
5. Michelle earned a Bachelor’s of Science and Accounting from Minnesota State University and has provided accounting support across a variety of industries, including retail, manufacturing, higher education, and professional services.

A bank reconciliation statement is prepared by a depositor (account holder) to overcome differences in the balances of the cash book and bank statement. If you’re using accounting software, it may give you the option to connect your bank account so transactions are automatically downloaded and categorized. This can save you some time, although it’s important to periodically check everything manually to ensure its accuracy and that there are no bank errors. Many companies produce bank reconciliation statements regularly to ensure they’ve recorded all their banking transactions properly and that their ending balance matches the amount the bank says it has. Once you’re done comparing the accounts, reconciling any problems, and adjusting your bank and cash balances, there should be an unreconciled difference of $0 between your general ledger and bank statement. Bank charges are service charges and fees deducted for the bank’s processing of the business’s checking account activity.

Adjust the Bank Statements

We do not include the universe of companies or financial offers that may be available to you. The entries in the entity’s books to rectify the discovered discrepancies (except for the outstanding cheques) would typically be made in a subsequent date or period, not backdated. When cheques become stale (ie., out of date), they would typically be reversed, not cancelled. At Business.org, our research is meant to offer general product and service recommendations. 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.

What Is a Bank Reconciliation Statement, and How Is It Done?

However, businesses with a high transaction volume or increased fraud risk may need to reconcile more frequently, sometimes even daily. The key is to establish a routine that best suits your business’s unique needs and financial activity. A bank reconciliation is the process of preferred synonyms and antonyms matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate.

(a) Deposits made by Sara Loren on 30 May, $1,810, and on 31 May, $2,220, have not been credited to the bank statement. They also explain any delay in the collection of cheques, and they identify valid transactions recorded by one party but not the other. Since these items are generally reported to the company before the bank statement date, they seldom appear on a reconciliation. Examples include deposited checks returned for non-sufficient funds (NSF) or notes collected on the depositor’s behalf. The firm’s account may contain a debit entry for a deposit that was not received by the bank prior to the statement date. But this compensation does not influence the information we publish, or the reviews that you see on this site.