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

Book transactions are transactions that have been recorded on your books but haven’t cleared the bank. As a small business, you may find yourself paying vendors and creditors by issuing check payments. Let’s take a look at a hypothetical company’s bank and financial statements to see how to conduct a bank reconciliation. Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees. It’s recommended for a company to perform a bank reconciliation at least once a month.

When cheques become stale (ie., out of date), they would typically be reversed, not cancelled. Bank reconciliation also helps you identify fraud or theft and intervene early. If someone has withdrawn funds without your knowledge or consent, bank reconciliation will clue you in. If you’re searching for accounting software that’s user-friendly, full of smart features, and scales with your business, Quickbooks is a great option. After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same.

What is the approximate value of your cash savings and other investments?

A single 30-day period should give you a manageable number of transactions to compare between accounts. Maintaining accurate financial records makes it easier to organize your taxes when it comes time to file. Regular bank reconciliation saves you from having to review a full year of financial records—instead, you can quickly consult your reconciliation statements to review any required information. 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.

Why Is It Important To Reconcile Your Bank Statements?

1. 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.
2. Maintaining accurate financial records makes it easier to organize your taxes when it comes time to file.
3. Financial statements show the health of a company or entity for a specific period or point in time.
4. The need and importance of a bank reconciliation statement are due to several factors.

They also can be done as frequently as statements are generated, such as daily or weekly. Financial statements show the health of a company or entity for a specific 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. Bank reconciliation statements are effective tools for detecting fraud, theft, and gross annual income definition loss. For example, if a check is altered, the payment made for that check will be larger than you anticipate.

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

Bank reconciliation is a simple and invaluable process to help manage cash flows. It’s important to perform a bank reconciliation periodically to identify fraudulent activities or bookkeeping and accounting errors. This way, you can ensure your business is in solid standing and never be caught off-guard. 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. If you’re not careful, your business checking account could be subject to overdraft fees. A bank reconciliation statement is a document that is created by the bank and must be used to record all changes between your bank account and your accounting records.

For example, say ABC Holding Co. recorded an ending balance of $500,000 on its records. After careful investigation, ABC Holding found that a vendor’s check for $20,000 hadn’t been presented to the bank. It also missed two $25 fees for service charges and non-sufficient funds (NSF) checks during the month. To reconcile means to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another.

The reconciliation statement allows the accountant to catch these errors each month. The company can now take steps to rectify the mistakes and balance its statements. In this case, the reconciliation includes the deposits, withdrawals, and other activities affecting a bank account for a specific period. If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible). If you suspect an error in your books, see some common bank reconciliation errors below.

This can be accomplished by matching transactions, and then adding or deducting any transactions that do not align to balance the total amounts. A bank reconciliation compares a company’s cash accounting statements against the cash it has in the bank. A bank reconciliation is used to detect any errors, catch discrepancies between the two, and provide an accurate picture of the company’s cash position that accounts for funds in transit. 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.