How To Do A Bank Reconciliation: Step By Step

Reconciling bank statements with cash book balances helps your business know the underlying causes of these balance differences. Once the underlying cause of the difference between the cash book balance and the passbook balance is determined, you can then make the necessary corrections in your how to start a bookkeeping business 2023 guide books to ensure accuracy. The purpose of the bank reconciliation is to be certain that the company’s general ledger Cash account is complete and accurate.

Step 2: Compare deposits

As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account. When your business issues a check to suppliers or creditors, these amounts are immediately recorded on the name of the journal means credit side of your cash book. However, there might be a situation where the receiving entity may not present the checks issued by your business to the bank for immediate payment. This way, the number of items that can cause the difference between the passbook and the cash book balance is reduced.

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While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. In this guide, we’ll explain exactly why doing a bank reconciliation is so important, and give you step-by-step instructions on how to complete one. Kevin has been writing and creating personal finance and travel content for over six years. He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast.

1. However, as a business owner, it’s important to understand the reconciliation process.
2. They are helpful when reconciling accounts to print statements, clearing errors, etc.
3. 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.
4. Once you complete the bank reconciliation statement at the end of the month, you need to print the bank reconciliation report and keep it in your monthly journal entries as a separate document.
5. If not, add the missing deposits to your records and your total account balance.

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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. The goal of bank account reconciliation is to ensure your records align with the bank’s records. This is accomplished by scanning the two sets of records and looking for discrepancies. If you find any errors or omissions, determine what happened to cause the differences and work to fix them in your records. A bank reconciliation statement is only a statement prepared to stay abreast with the bank statement; it is not in itself an accounting record, nor is it part of the double entry system. The bank statement submitted by the businessman at the end of May will not contain an entry for the check, whereas the cash book will have the entry.

You’ll need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or any checks issued that have not yet been presented for payment. It is important to note that it takes a few days for the bank to clear the checks. 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. After adjusting all the above items, you’ll end up with the adjusted balance as per the cash book, which must match the balance as per the passbook. Next, we look at how a bank uses debit and credit when referring to a company’s checking account transactions.

In this case, the bank hasn’t honored it due to insufficient funds from an entity’s account. That means it hasn’t been reflected in the bank statements, yet it’s recorded in your cash book, so you need to deduct it from your records. 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.

All of our content is based on objective analysis, and the opinions are our own. Nevertheless, on 5 June, when the bank pays the check, the difference will cease to exist. It’s not uncommon for companies to pay a supplier twice for the same invoice, especially when it’s a recurring amount. We offer reconciliation reports, discrepancy identification, and live accountants to work with for ease and confidence when closing your books.