Bank Reconciliation Statement Importance, Format, Example

Also, when transactions aren’t recorded promptly and bank fees and charges are applied, it can cause mismatches in the company’s accounting records. A bank reconciliation statement can help you identify differences between your company’s bank and book balances. Bank statements are commonly routinely produced by the financial institution and used by account holders to perform their bank reconciliations. If you’re working for yourself, you (or your accountant or bookkeeper) will perform bank reconciliation. But if multiple people handle your business’s finances, the person reconciling the accounts should probably be different from the person signing the checks.

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First, bank reconciliation statements provide a mechanism of internal control over cash. In cases where you discover discrepancies that cannot be explained by your financial statements, it’s best to contact your bank. It’s possible that a banking error has occurred or that you have been charged for something you were unaware of.

The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate. The information on the bank statement is the bank’s record of all transactions impacting the entity’s bank account during the past month. You can also perform bank reconciliation by hand, meaning you’d manually compare your bank statement to your general ledger transaction by transaction.

1. This can include large payments and deposits or notifications of suspicious activity from your bank.
2. Accurate cash flow is essential for keeping a business running smoothly, so it’s important to be aware of all incoming and outgoing cash.
3. To reconcile your bank accounts, you’ll first need a copy of your most recent bank statement and access to your business’s accounting records.
4. After fee and interest adjustments are made, the book balance should equal the ending balance of the bank account.

Transposition error

In an ideal world, the bank statement balance the accounting ledger balance would always be the same, but they rarely are. To reconcile your bank accounts, you’ll first need a copy of your most recent bank statement and access to your business’s accounting records. Specifically, you’ll want access to the general ledger and cash book, which records your cash and bank transactions. Compare each bank transaction to the corresponding transaction as recorded in your general ledger, ensuring the documents match. A bank reconciliation is the process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement.

Problems with Bank Reconciliations

Deposits in transit are amounts that are received and recorded by the business but are not yet recorded by the bank. The checks Fender wrote to vendors won’t actually be withdrawn from Fender’s bank account until the vendors actually receive and cash them. The checks Fender received from customers won’t actually appear in Fender’s bank account until they are cashed and the bank clears them. If there is so little activity in a bank account that there really is no need for a periodic bank reconciliation, you should question why the account even exists.

Match the deposits in the business records with those in the bank statement. A bank may charge an account maintenance fee, typically withdrawn and processed automatically from the bank account. When preparing a bank reconciliation statement, a journal entry is prepared to account for fees deducted. Since you’ve already adjusted the balances to account for common discrepancies, the numbers should be the same. The need and importance of a bank reconciliation statement are due to several factors.

We’ll explore the definition of bank reconciliation, why it’s important, and a step-by-step process for performing bank reconciliations. We’ll also look at common sources of discrepancies between financial statements and bank statements to help you identify fraud risks and errors. Performing regular bank reconciliations is key to keeping on top of your company’s financial health and paving the way for sustainable business growth. A bank reconciliation is an essential process for ensuring that your company’s financial statements match the available cash in your business bank account.

What Should You Do if You Cannot Reconcile Your Account?

It shows what transactions have cleared on your statement with the corresponding transaction listed in your journal. Additionally, bank reconciliation statements brings into focus errors and irregularities while dealing with the cash. You should perform bank reconciliation at least every month—which is the difference between margin and markup how often your bank sends a bank statement.