The bank may send you a bank statement at the end of each month, every week, or even at the end of each day in case of businesses having a huge number of transactions. This reduces your bank balance as reflected in your bank statement. It is important to note that such charges are not recorded by you as a business till the time your bank provides you with the bank statement at the end of every month. Such deposits are not showcased in the bank statement on the reconciliation date.
- The basic sequence, of preparing a bank reconciliation, consists of the following eight steps.
- Or there may be a delay when transferring money from one account to another.
- Once solved, be sure to adjust your records to reflect deposits as needed.
- Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control.
- For the business, the transaction will already have been recorded in the bank book because the cheque was issued.
- Although the check clears the bank at the amount written on the check ($47), the depositor frequently does not catch the error until reviewing the bank statement or canceled checks.
To prevent collusion among employees, the person who reconciles the bank account should not be involved in the cash disbursement cycle. Also, the bank should mail the statement directly to the person who reconciles the bank account each month. Sending the statement directly limits the number of employees who would have an opportunity to tamper with the statement.
Compare the balances again
Even minute discrepancies can be an indicator of other underlying problems. Therefore, it is better if the bank reconciliation is accurate, and there are no missing amounts. Access the on-line bank statement provided by the bank for the company’s cash account (presumably its checking account). Once you have incorporated the adjustments in the bank reconciliation statement, you have to ensure that the totals of both sides mentioned at the bottom match. There are times when the bank may charge a fee for maintaining your account. Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account.
Non-sufficient funds (NSF) checks are recorded as an adjusted book-balance line item on the bank reconciliation statement. A bank may charge an account maintenance fee, typically which of the following is not a step in preparing a bank reconciliation? withdrawn and processed automatically from the bank account. When preparing a bank reconciliation statement, a journal entry is prepared to account for fees deducted.
Tips for a Successful Bank Reconciliation
The company carries over the balance from its bank book to its trail balance and, subsequently, its financial statements. Therefore, the bank book is an important document in the accounting process of a company. 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.
However, the bank charges these amounts to its customers’ accounts directly. Since the company does not receive the bank statement until the end of the month, it cannot predict these charges or record them. Unrecorded differences are amounts that are present in the bank statement but not present in the bank book are known as unrecorded differences. Cross-checking bank statements with the balance sheet at least once every month during the closing process is necessary. It helps identify discrepancies early and prevent errors from piling up. If the business has a high volume of transactions, reconciliations should be done more frequently.
