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

you are doing a monthly bank reconciliation

The easiest way to find these adjustments when completing a bank reconciliation is to look at the bank fees in your bank statement. Also, check for any miscellaneous deposits that haven’t been accounted for. Once you’ve located these items, you’ll need to adjust the G/L balance to reflect them. Non-sufficient funds (NSF) checks are recorded as an adjusted book balance line item on the bank reconciliation statement.

This error is a reconciling item because the company’s general ledger cash account is overstated by $63. Conducting a monthly bank reconciliation helps you understand your company’s cash flow, protect against overdraft fees, and guard against fraud. The bank reconciliation process is vital to the checks and balances (no pun intended). The best practice is to ensure that no individual has control over all financial transactions for a business. In your finances, you know that your current bank account balance doesn’t accurately represent your available cash. There might be deposits in transit and expenses and withdrawals that haven’t cleared yet.

Who’s responsible for bank reconciliations?

Whether you perform the month end close process manually or automatically, having a checklist in place can help ensure that nothing falls through the cracks. Record the funds you’ve received during the month in terms of loans, revenue, invoice payments, etc. Although fintech and automation are widely celebrated, there are still some accounting practices that need a keen set of human eyes. This process aims to have all the company’s bank movements under control and should be done periodically. The ideal period of time is every 15 days, or at the end of each month. And set up a system that makes it quick and easy to grab the records you need.

This can happen if you’re reconciling an account for the first time or it wasn’t properly reconciled last month. You may need to go back to previous months to locate the issue. To further optimise your accounting process and, therefore, your cash flow, it’s worth leveraging accounts receivable software like that offered by Chaser.

Review Fixed Assets and Inventory

Now, why do a bank reconciliation, let alone on a monthly basis? Reconciling statements may seem like a mundane task to perform as time permits. It’s probably the single easiest way to catch errors, prevent fraud and verify cash flow. Here are five compelling reasons why your reconciliations should be performed https://www.bookstime.com/blog/time-is-money monthly. As defined by the RAE, La Real Academia Española, bank reconciliation is the process that identifies the cause of the differences between the balance of the bank movements and the accounting records. As an example, say ABC Holding Co. recorded an ending balance of $480,000 on its records.

Performing bank reconciliations is one of a company’s best practices. Some people have a casual attitude about their finances, figuring that whatever’s in their cash or bank account will sort itself out eventually. However, in the business world, where you’re dealing with clients, retainers, expenditures, investors, marketing, and payroll, you can’t afford to be so informal. If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile.

Review Deposits, Checks, and Debits

To perform a bank reconciliation, you need a few items including a bank statement and your internal accounting records. Hopefully, you have developed proper accounting or bookkeeping procedures to keep track of any pending cash transactions (either inflows or outflows). Watch this webinar to see the Chaser platform in action, or contact our team to find out how Chaser can support your business accounting processes.

  • As outlined above, bank reconciliations is a process that  compares and matches the financial records of a business with the bank statements to ensure they are consistent and accurate.
  • Every business leader recognises the value of a month end close process that is error-free and easy to perform.
  • It can help make the process far less painful and much more accurate, and will even do some of the clerical work for you.
  • Bank reconciliation is a simple and invaluable process to help manage cash flows.
  • A bank reconciliation statement is a summary of banking and business activity prepared by a company or individual.
  • With all your records in line and transactions matching, you can review financial statements, including the general ledger, profit and loss statement, and business balance sheet.
  • Common errors include entering an incorrect amount or omitting an amount from the bank statement.

The process can help you correct errors, locate missing funds, and identify fraudulent activity. The balance of the cash account in an entity’s financial records may require adjusting as well. For instance, a bank may charge a fee for having the account open.

Bank Reconciliation Record Keeping

Transactions that aren’t accounted for in your bank statement won’t be as obvious as bank-only transactions. This is where your accounting software can really help you reconcile and keep track of outstanding checks and deposits. Most reconciliation modules allow you to check off outstanding checks and deposits listed on the bank statement.

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