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And if you’re consistently seeing a discrepancy in accounts receivable between your balance sheet and your bank, you know you have a deeper issue to fix. 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. In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench). If you find any bank adjustments, record them in your personal records and adjust the balance accordingly. If you’ve been charged a fee in error, contact your bank to resolve the issue.

They might reconcile on a daily basis to make sure everything matches and all cash receipts hit the bank account. On the other hand, a small online store—one that has days when there are no new transactions at all—could reconcile on a weekly or monthly basis. We’ll go over each step of the bank reconciliation process in more detail, but first—are your books up to date? If you’ve fallen behind on your bookkeeping, use our catch up bookkeeping guide to get back on track (or hire us to do your catch up bookkeeping for you). If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the mail today, I promise! Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid).

Conducting regular bank reconciliation helps you catch any fraud risks or financial errors before they become a larger problem. This includes everything from major fraud and theft to accounting miscalculations, insufficient funds, and incomplete or duplicated payments. Begin with a side-by-side comparison of your bank account statement and your company’s accounting records. Check that your financial transaction records include all payments and deposits for the transaction period, as well as the final balance. By comparing the two statements, Greg sees that there are $11,500 in checks for four orders of lawnmowers purchased near the end of the month.

Adjust the Bank Statements

A company prepares a bank reconciliation statement to compare the balance in its accounting records with its bank account balance. A bank reconciliation statement is a valuable internal tool that can affect tax and financial reporting and detect errors and intentional fraud. We strongly recommend performing a bank reconciliation at least on a monthly basis to ensure the accuracy of your company’s cash records. 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. This can also help you catch any bank service fees or interest income making sure your company’s cash balance is accurate.

To successfully complete your bank reconciliation, you’ll need your bank statements for the current and previous months as well as your company ledger. An online template can help guide you, but a simple spreadsheet is just as effective. Performing immediate bank reconciliations for large cash amounts or suspicious transactions further increases your ability to catch fraud and error. Go through both statements and highlight any transactions that appear on only one side. Note that transactions may take a few days to clear, so the transaction date in your financial records may not precisely match the date on your bank statement. For instance, if you haven’t reconciled your bank statements in six gross margin vs. contribution margin months, you’ll need to go back and check six months’ worth of line items.

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.

Ensures Financial Accuracy and Cash Flow

Once you locate these items, you’ll need to adjust your G/L balance to reflect them. It’s true that most accounting software applications offer bank connectivity, which can speed up the reconciliation process immensely. However, connecting your accounting software to your bank or financial institute does not take the place of doing a month-end bank reconciliation. Make sure that you’ve also taken into account all deposits and withdrawals to an account when preparing the bank reconciliation statement.

Step 3. Compare Withdrawals

Whatever method you prefer, it’s important to keep solid records of every transaction to reconcile your bank account properly. The easiest way to check for this is to print a check register for the month and compare it to the checks that have cleared the bank. Any checks that have been issued that accept payments online 2020 haven’t cleared the bank must be accounted for under your bank balance column. After adjusting the balance as per the cash book, you’ll need record all adjustments in your company’s general ledger accounts. Ideally, you should run a reconciliation each time you receive the statement from your bank. The bank may send you a bank statement at the end of each month, each week, or, if your business has a large number of transactions, they may even send one at the end of each day.

Bank Reconciliation: Definition, Example, and Process

Using cloud accounting software, like Quickbooks, makes preparing a reconciliation statement easy. Because your bank account gets integrated with your online accounting software, all your bank transactions will get marketable securities updated automatically and each item will be matched with your books of accounts. The bank will debit your business account only when they’ve paid these issued checks, meaning there is a time delay between the issuing of checks and their presentation to the bank. These time delays are responsible for the differences that arise in your cash book balance and your passbook balance.

1. If any discrepancies cannot be identified and reconciled, it may signal an error or risk of fraud which your company can investigate further.
2. This is due to the time delay that occurs between the depositing of cash or a check and the crediting of it into your account.
3. If you’ve been charged a fee in error, contact your bank to resolve the issue.
4. An online template can help guide you, but a simple spreadsheet is just as effective.
5. As a result, the bank statement balance will be lower than the cash book balance, so the difference will need to be adjusted in your cash book before preparing the bank reconciliation statement.
6. Because your bank account gets integrated with your online accounting software, all your bank transactions will get updated automatically and each item will be matched with your books of accounts.

Some people rely on accounting software or mobile apps to track financial transactions and reconcile banking activity. Others use a paper checkbook, and balance it each month, to keep a record of any written checks and other transactions. You can also opt to use a simple notebook or spreadsheet for recording your transactions. Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Keeping accurate records of your bank transactions can help you determine your financial health and avoid costly fees.