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Why you need to do a bank reconciliation every month

By completing a bank reconciliation every day, you can spot and correct problems immediately. Ideally, you should reconcile your bank account each time you receive a statement from your bank. This is often done at the end of every month, weekly and even at the end of each day by businesses that have a large number of transactions. Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees. You only need to reconcile bank statements if you use the accrual method of accounting.

Bank reconciliation is the process of comparing the balance as per the cash book with the balance as per the passbook (bank statement). The very purpose of reconciling the bank statement with your business’ books of accounts is to identify any differences between the balance of the two accounts. Once the adjusted balance of the cash book is worked out, then the bank reconciliation start bookkeeping business statement can be prepared. In this way, the number of items that cause the difference between the passbook and the cash book balance gets reduced. Furthermore, it gets easier to ascertain the correct amount of balance at the bank in the balance sheet. Regardless of how you do it, reconciling your bank account can be a priceless tool in your personal finance arsenal.

  • The individual is reimbursed for the incorrect charges, the card is canceled, and the fraudulent activity stopped.
  • Also, when transactions aren’t recorded promptly and bank fees and charges are applied, it can cause mismatches in the company’s accounting records.
  • The automation of bank reconciliation is only one of the many features that come with the Deskera Books platform.

Interest is automatically deposited into a bank account after a certain period of time. So the company’s accountant prepares an entry increasing the cash currently shown in the financial records. After adjustments are made, the book balance should equal the ending balance of the bank account.

What is bank reconciliation?

In this case, a check went out or a deposit was made, and you forgot to record it. It’s very important to immediately track any outstanding checks so that you’re aware of all activities. Go line-by-line on your company’s bank statement to double check if they match your internal records. Often as a small business, you find yourself paying vendors and creditors by issuing check payments. When a check is issued, your bank statement won’t reflect the outstanding checks if they haven’t been cashed yet.

  • In the Bank reconciliation screen, you can view the following records on the statement date, statement balance, uncleared deposits, uncleared withdrawals, and the difference between the accounts.
  • There is vital room for human error when your accountants are working by multi-tab Excel workbooks that include hundreds or thousands of line items that need to be overviewed.
  • This happens because some checks can take several days to clear after they are deposited.
  • If you’re missing transactions in your personal records, add them and deduct the amount from your balance.
  • Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account.

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. In many cases, you will notice slight differences in the cash accounts between your bank statement and accounting records that can be easily reconciled. The reasons for this can include bank-only transactions that may have impacted the ending balance, such as interest income or outstanding checks that haven’t been processed yet.

The result could be an overdrawn bank account, bounced checks, and overdraft fees. Reconciling your bank statements simply means comparing your internal financial records against the records provided to you by your bank. This process is important because it ensures that you can identify any unusual transactions caused by fraud or accounting errors. As a business, the practice can also help you manage your cash flow and spot any inefficiencies. Reconciling your bank statements is important because it ensures that your financial records accurately reflect your actual bank account balance. This helps to identify any discrepancies or errors, prevent fraud, and provides valuable insights into your cash flow and financial health.

Add bank-only transactions to your book balance

For the most part, how often you reconcile bank statements will depend on your volume of transactions. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. When they draw money from your account to pay for a business expense, they could take more than they record on the books. The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account.


Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled. Bank reconciliation is not a ledger itself, but rather a process or a tool used to ensure the accuracy and consistency between a company’s bank account records and its own accounting records. A lot of time and resources go into account reconciliation, making it an exhaustive and error-prone process.

The bank reconciliation is an important part of a company’s internal controls over its assets. To be effective, it should be done by someone other than an authorized check signer and/or record keeper. At the very end, once the balances are equal and there aren’t any issues, you must prepare respective journal entries to reflect the changes to the balance sheet. Frequent bank reconciliations help you spot these types of errors, stay on top of your receivables, and make sure your outstanding invoices and bad debt expenses don’t spiral out of control. In other words, the adjusted balance as per the bank must match with the adjusted balance as per the cash book.

Such a time lag is responsible for the differences that arise in your cash book balance and your passbook balance. If you want to prepare a bank reconciliation statement using either of these approaches, you can take balance as per the cash book or balance as per the passbook as your starting point. The business needs to identify the reasons for the discrepancy and reconcile the differences. This is done to confirm every item is accounted for and the ending balances match. When you record the reconciliation, you only record the change to the balance in your books. The change to the balance in your bank account will happen “naturally”—once the bank processes the outstanding transactions.

For a more detailed and thorough illustration of a bank reconciliation and to learn the related terminology, be sure to see our topic Bank Reconciliation. You come to know about such deductions only when you receive the statement from the bank. Therefore, such adjustment procedures help in determining the balance as per the bank that goes into the balance sheet. Bank reconciliations may be tedious, but the financial hygiene will pay off. When you access this website or use any of our mobile applications we may automatically collect information such as standard details and identifiers for statistics or marketing purposes. You can consent to processing for these purposes configuring your preferences below.

Reasons for preparing a bank reconciliation statement

Hence, businesses must look to improve their bank reconciliation process to make it faster and more accurate. The previous entries are standard to ensure that the bank records are matching to the financial records. These entries are necessary to update Feeter‛s general ledger cash account to reflect the adjustments made by the bank. Bank reconciliation statements ensure that payments were processed and cash collections were deposited into the bank.

In such a case, you simply need to mention a note indicating the reasons for the discrepancy between your bank statement and cash book. At times, the balance as per the cash book and passbook may differ due to an error committed by either bank or an error in the cash book of your company. As a result of such direct payments made by the bank on your behalf, the balance as per the passbook would be less than the balance as per the cash book.

Recording Errors

Accurate financial statements allow investors to make informed decisions. The statements give companies clear pictures of their cash flows, which can help with organizational planning and making critical business decisions. In this case, the reconciliation includes the deposits, withdrawals, and other activities affecting a bank account for a specific period.

Adjustments to books balance:

In this guide, we’ll walk you through all of the accounting information and steps you need to know, in order to prepare bank reconciliations for your business’s accounting. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. In addition, there may be cases where the bank has not cleared the cheques, however, the cheques have been deposited by your business. Therefore, the bank needs to add back the cheque’s amount to the bank balance.

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Why you need to do a bank reconciliation every month

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