When you do a bank reconciliation, you first find the bank transactions that are responsible for your books and your bank account being out of sync. When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy. Then, you make a record of those discrepancies, so you or your accountant can be certain there’s no money that has gone “missing” from your business. When a company maintains more than one checking account, it must reconcile each account separately with the balance on the bank statement for that account. The depositor should also check carefully to see that the bank did not combine the transactions of the two accounts.

The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. 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.

Example 1: Preparation of Bank Reconciliation Statement Without Adjusting the cash book Balance

Since the company has already recorded the deposits in transit in its books as cash receipts, the deposit amount must be added to the bank statement balance when preparing its bank reconciliation statement. The cash account balance in an entity’s financial records may also require adjusting in some specific circumstances, if you find discrepancies with the bank statement. In these cases, journal entries record any adjustment to the book’s balance. After fee and interest adjustments are made, the book balance should equal the ending balance of the bank account. That is, after a business receives its bank statement, it prepares a bank reconciliation statement to identify every difference between the business’s financial records and the bank’s records.

• The bank will debit your business account only when the bank pays these issued cheques.
• As a result, the balance as per the cash book differs from the passbook.
• You first need to determine the underlying reasons responsible for the mismatch between balance as per cash book and passbook.

In this example, recording bank fees usually have this journal entry after a bank reconciliation. It’s advisable to consult with a financial professional to advise on the appropriate journal entries for your bank reconciliation adjustments. They will ensure all is as it should be and no data is incorrect or missing. To do this, businesses need to take into account the bank charges, NSF checks and errors in accounting. The business needs to identify the reasons for the discrepancy and reconcile the differences.

You need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or the cheques issued but not yet presented for payment. Ensure that you take into account all the deposits as well as the withdrawals https://personal-accounting.org/ posted to an account in order to prepare the bank reconciliation statement. This is done by taking into account all the transactions that have occurred until the date preceding the day on which the bank reconciliation statement is prepared.

Bank Reconciling Statement: Adjusting Balance per cash Books

However, in practice there exist differences between the two balances and we need to identify the underlying reasons for such differences. You will know about such information only when you receive the bank statement at the end of the month. At times, you might give standing instructions to your bank to make some https://online-accounting.net/ payments regularly on specific days to the third parties. For instance, insurance premiums, telephone bills, rent, sales taxes, etc are directly paid by your bank on your behalf and debited to your account. Your bank may collect interest and dividends on your behalf and credit such an amount to your bank account.

Adjust the internal records:

Thus, such a situation leads to the difference between bank balance as per the cash book and balance as per the passbook. Recall that the adjustments to the balance per BOOKS will require accounting entries for the items to be posted to the company’s general ledger accounts. Compare every amount on the bank statement (or the bank’s online information) with every amount in the company’s general https://simple-accounting.org/ ledger Cash account and note any differences. Compare every amount on the bank statement (or in the bank’s online information) with every amount in the company’s general ledger Cash account and note any differences. Financial statements show the health of a company or entity for a specific period or point in time. Accurate financial statements allow investors to make informed decisions.

Bank Reconciliation Problems

However, such deposited cheques or discounted bills of exchange drawn by your business entity get dishonored on the date of maturity. The bank will debit your business account only when the bank pays these issued cheques. When you compare the balance of your cash book with the balance showcased by your bank passbook, there is often a difference. Note that the transactions the company is aware of have already been recorded (journalized) in its records. However, the transactions that the bank is aware of but the company is not must be journalized in the entity’s records.

Bank Reconciliation Statement Template

The easiest way to find these adjustments when completing a bank reconciliation is to look at the bank fees. You’ll also want to look at any miscellaneous deposits that haven’t been accounted for. Once you locate these items, you’ll need to adjust your G/L balance to reflect them. One is making a note in your cash book (faster to do, but less detailed), and the other is to prepare a bank reconciliation statement (takes longer, but more detailed). This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task.

Preparing a Bank Reconciliation Statement

For example, say ABC Holding Co. recorded an ending balance of $500,000 on its records. After careful investigation, ABC Holding found that a vendor’s check for $20,000 hadn’t been presented to the bank. It also missed two $25 fees for service charges and non-sufficient funds (NSF) checks during the month. 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.