For some entrepreneurs, reconciling bank transactions creates a sense of calm and balance. If you’re in the latter category, it may be time to think about hiring a bookkeeper who will do the reconciling for you. The more frequently you reconcile your bank statements, the easier it is each time. In huge companies with full-time accountants, there’s always someone checking to make sure every number checks out, and that the books match reality.
- You’ll also want to look at any miscellaneous deposits that haven’t been accounted for.
- If any discrepancies or fraudulent charges are identified, the required changes are made to the balance sheet.
- Generally, these transactions are either recorded on a spreadsheet or within your accounting software.
- What appears on the bank reconciliation statement itself is, in a nutshell, a summary of your business and banking activity.
- The frequency of reconciling bank statements depends on the size and complexity of the business and its transaction volume.
Compare the balance sheet’s ending balance with the bank statement’s ending balance. Remember that items such as outstanding checks do not need be recorded into the G/L since they are already there. However, anything that affects the G/L such as unexpected deposits, interest income, or service fees will need to be recorded. When you’re completing a bank reconciliation, the biggest difference between the bank balance and the G/L balance is outstanding checks. It’s common for your bank statement to have a higher ending balance than your G/L account shows. While it may be tempting to assume you have more money in the bank than you think, it’s a safe bet that the difference is checks and other payments made that have not yet hit the bank.
Accounting for Cash at the Company
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. Next, check to see if all of the deposits listed in your records are present on your bank statement. If the bank didn’t receive a deposit, investigate why it’s missing. Whatever method you prefer, it’s important to keep solid records of every transaction to reconcile your bank account properly. As a part of this process, you might require to prepare some journal entries to correct errors.
This allows for the reconciliation process to begin earlier in the month depending on the number of transactions passing through the bank account. In every company, a critical function of the accounting department is to ensure the safeguarding of assets. These include cash held on site and the money in its bank account(s). The preparation of a bank reconciliation is the most efficient process of ensuring that a company’s cash is being accounted for accurately. Go through all of the deposits in your bank account and make sure that each deposit on the bank statement has a matching entry within your accounting records. For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items.
As mentioned above, timing differences do not require any adjustments in the bank book balance. Therefore, these items need to be part of the bank reconciliation statement only. For timing differences, the company must cancel out the effect of outstanding checks and deposits in transit.
Not Reviewing Reconciliation Reports:
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Tips for Successful Bank Reconciliations
Similarly, the timing differences need to be adjusted against the bank statement balance. The bank book of ABC Co. will be credited with the above amounts because they are all payments from the bank account. To prepare a bank reconciliation, it is important that both the bank book and the bank statement of the business are available. Any difference that is not an unrecorded difference or a timing difference is an error. As previously mentioned, errors can occur on both sides, the bank book or the bank statement. Therefore, once the business gets the bank statement and identifies these differences, these are recorded in the bank book of the business.
Recording Transactions Incorrectly:
These differences are adjusted against the bank statement balance but are not recorded in the bank statement. These are differences that will appear in the bank statement after some time, most probably in the next bank statement. The end balance of your business bank account and financial statements will serve as the starting point for the next bank reconciliation go-round. However, the depositor/customer/company credits its Cash account to decrease its checking account balance. However, the depositor/customer/company debits its Cash account to increase its checking account balance. Note that Community Bank credits its liability account Customers’ Deposits (which includes the individual depositor’s checking account balance).
Bank Reconciliation Made Easy: A Step-by-Step Guide to Achieving Financial Accuracy
After checking all the critical items, adjust the cash balances to account for all expenses and transactions. For instance, the bank charged your business $30 in service fees, but it also paid you $5 in interest. If you commonly make deposits into your account, you’ll want to compare your bank account deposit totals to those listed in your general ledger.
COMPARE THE DEPOSITS
There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them. Once the types of differences are identified, they should be taken and adjusted against the relevant document balance. These differences, as discussed above, will either be due to unrecorded or timing differences.
Therefore, you need to pass a journal entry in your books of accounts showcasing the increase in cash balance due to the interest or dividend earned. In such a case, your bank has recorded the receipts in your business account at the bank. As a result, the balance showcased in the bank passbook would be more than the balance shown in your company’s cash book. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook.
Unrecorded differences, as the names suggests, are differences that are not recorded. These are differences that are recorded in the bank statement of a business but not in the bank book of the business. There might be differences when checks haven’t been cleared, cash hasn’t been deposited or a transaction was incorrectly inputted on the accounting side. If cash hasn’t yet been deposited because an employee is pocketing the money for their own use, then you might have an incident of fraud on your hands.
Performing regular bank reconciliation can help the company identify any issues within its internal processes related to bank transactions that may result in errors. It can, in turn, help the company improve its bank processes and make them more efficient and effective. Therefore, bank reconciliation can help the company identify any weaknesses within the banking transaction controls. Ensure that you enter all the transactions for the month in your general ledger before you begin the reconciliation process for that month. This will reduce the time taken to complete your bank reconciliation. Always remember that timely processing of your company’s bank reconciliation can help identify error, theft and will help with proper cash management.