Bank Reconciliations: Everything You Need to Know Bench Accounting

After identifying the reasons your bank statement doesn’t match accounting records, you have to update your records. If the bank has made errors, notify them so that they correct the transactions. The reason could be that deposits are in transit or outstanding checks have not yet been reflected.

This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task. 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. Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly. When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy.

How Often Should You Reconcile Your Bank Account?

1. You’ll need to account for these fees in your G/L in order to complete the reconciliation process.
2. However, small business owners and bookkeepers need to remember that yes, banks do make mistakes, and one of the best ways to find those mistakes is by reconciling all of your bank accounts monthly.
3. Next, check to see if all of the deposits listed in your records are present on your bank statement.
4. The bank records all transactions in a bank statement, also known as passbook, while the customer records all their bank transactions in a cash book.

The more frequently you reconcile your bank statements, the easier it is each time. During September, the company received $120,000 from sales and invoiced debtors $40,000 the previous month, and received a check that has not yet been reflected in the bank account. It’s possible there are additional transactions on the bank statement that you may not have in small business bookkeeping memphis your records.

How you choose to perform a bank reconciliation depends on how you track your money. Some people rely on accounting software or mobile apps to track financial transactions and reconcile banking activity. Others use a paper checkbook, and balance it each month, to keep a record of any written checks and other transactions. You can also opt to use a simple notebook or spreadsheet for recording your transactions. Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. You’ll need a few items to perform a bank reconciliation, including your bank statement, internal accounting records, and a record of any pending cash transactions (either inflows or outflows).

What Should You Do if You Cannot Reconcile Your Account?

Compare the ending balance of your accounting records to your bank statement to see if both cash balances match. 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. This can also help you catch any bank service fees or interest income making sure your company’s cash balance is accurate. A bank reconciliation reconciles the bank statement with the company’s bank account records.

How often to reconcile bank statements

Regular bank reconciliation saves you from having to review a full year of financial records—instead, you can quickly consult your reconciliation statements to review any required information. Go through both statements and highlight any transactions that appear on only one side. Note that transactions may take a few days to clear, so the transaction date in your financial records may not precisely match the date on your bank statement. Greg’s January financial statement for the company shows $100,000 in cash, but the bank statement shows only $88,000. Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees.

This is especially common in cases where the check is deposited at a different bank branch than the one at which your account is maintained, which can lead to the difference between the balances. This way, the number of items that can cause the difference between the forever freedom international passbook and the cash book balance is reduced. And as a result, it gets easier to ascertain the correct balance in the balance sheet.

In huge companies with full-time accountants, there’s always someone checking to make sure every number checks out, and that the books match reality. In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench). Errors in the cash account result in an incorrect amount being entered or an amount being omitted from the records. The correction of the error will increase or decrease the cash account in the books.