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How to Prepare Bank Reconciliation? A Step-by-Step Guide

Preparing a Bank Reconciliation

In any case, those items that reconcile the general ledger (book balance) to the adjusted bank balance (the target) have to be recorded. It ensures the accuracy of financial records, aids in detecting fraud, and helps prevent financial errors. Regular reconciliation is vital for maintaining financial transparency and accountability, particularly for businesses where discrepancies can lead to significant financial misstatements. Bank reconciliation accounting is performed by the accounts payable department. It’s a means of comparing bank statements against a company’s personal records to spot any discrepancies, mistakes, cash manipulations, or fraudulent charges. Bank reconciliation done through accounting software is easier and error-free.

It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes. An asset account in a bank’s general ledger that indicates the amounts owed by borrowers to the bank as of a given date. Therefore, you need to deduct the amount of these cheques from your bank balance.

Step 3: Compare checks and adjust bank total

You must post the journal entries of all the adjustments made to the balance as per the cash book. Bank reconciliation involves comparing a company’s internal financial records with those provided by the bank. This comparison is performed at periodic bank reconciliation intervals to ensure consistency between the company’s recorded cash balances and the figures reported by the bank. The primary purpose of bank reconciliation is to identify any discrepancies or irregularities between the two sets of records.

  • Some mistakes could adversely affect financial reporting and tax reporting.
  • It can, in turn, help the company improve its bank processes and make them more efficient and effective.
  • This makes it a great option for larger businesses with complex payment processing and multichannel transactions and those operating in specialized industries, such as banking and finance.
  • However, there may be a situation where the bank credits your business account only when the cheques are actually realised.
  • For the most part, how often you reconcile bank statements will depend on your volume of transactions.
  • Such a time lag is responsible for the differences that arise in your cash book balance and your passbook balance.

Remember that transactions that aren’t accounted for in your bank statement won’t be as obvious as bank-only transactions. This is where your accounting software can help you reconcile and keep track of outstanding checks and deposits. Most reconciliation modules allow you to check off outstanding checks and deposits listed on the bank statement. For doing this, you must add deposits in transit, deduct outstanding checks and add/deduct bank errors. Miscellaneous debit and credit entries in the bank statements must be recorded on the balance sheet. If there are any differences, adjust the balance sheet to reflect all transactions.

Preparing a Bank Reconciliation Statement

If the bank does not return checks but only lists the cleared checks on the bank statement, determine the outstanding checks by comparing this list with the company’s record of checks issued. Checks outstanding as of the beginning of the month appear on the prior month’s bank reconciliation. Most of these have cleared during the current month; list those that have not cleared as still outstanding on the current month’s reconciliation. If canceled checks (a company’s checks processed and paid by the bank) are returned with the bank statement, compare them to the statement to be sure both amounts agree.

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