example of bank reconciliation

After adjusting the balance as per the cash book, you’ll need record all adjustments in your company’s general ledger accounts. Make sure that you’ve also taken into account all deposits and withdrawals to an account when preparing the bank reconciliation statement. Preparing a bank reconciliation statement is done by taking into account all transactions that have occurred up until the date preceding the day the bank reconciliation statement is prepared.

Step 3: Adjust the bank statements

These fees are charged to your account directly, and reduce the reflected bank balance in your bank statement. These charges won’t be recorded by your business until your bank provides you with the bank statement at the end of every month. Deposits in transit, or outstanding deposits, are not showcased in the bank statement on the reconciliation date. This is due to the time delay that occurs between the depositing of cash or a check and the crediting of it into your account.

Identification of Service Charges

Some businesses, which have money entering and leaving their accounts multiple times every day, will reconcile on a daily basis. If you find any bank adjustments, record them in your personal records and adjust the balance accordingly. If you’ve been charged a fee in error, contact your bank to resolve the issue. These checks are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment. However, sometimes there are differences between the two balances and so you’ll need to identify the underlying reasons for such differences. All of this can be done by using online accounting software like QuickBooks, but if you are not using accounting software, you can use Excel to record these items.

example of bank reconciliation

Company’s Process for Preparing its Bank Reconciliation

  • The deposit could have been received after the cutoff date for the monthly statement release.
  • For interest-bearing accounts, a bank adjustment could be the amount of interest you earned over the statement period.
  • Checks that have been issued by a business to creditors and credited in a cash book–but the payments have not yet been processed by a bank and so do not appear on a bank statement.
  • You entered it immediately in your accounting records and deposited the the check into your account.

Errors can occur in both the recordkeeping systems of both the bank and the depositor. Some transactions first appear in a bank statement before they are entered into the cash book simply because the business is unaware of their existence until it receives the bank statement. 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. It’s imperative to maintain detailed sets of records of the current reconciliation process and any adjustments made.

Effect of Time Intervals On Bank Reconciliation Statements

As a result, your balance as per the passbook would be less than the balance as per the cash book. When your business receives checks from its customers, these amounts are recorded immediately on the debit side of the cash book so the balance as per the cash book increases. However, there may be a situation where the bank credits your business account only when the checks are actually realised. Likewise, ‘credit balance as per cash book’ is the same as ‘debit balance as per passbook’ means the withdrawals made by a company from a bank account exceed deposits made.

A monthly reconciliation helps to catch and identify any unusual transactions that might be caused by fraud or accounting errors, especially if your business uses more than one bank account. The purpose of the bank reconciliation is to be certain that the company’s general ledger Cash account is complete and accurate. With the true cash balance reported in the Cash account, the company could prevent overdrawing its checking account or reporting the incorrect amount of cash on its balance sheet. The bank reconciliation also provides a way to detect potential errors in the bank’s records.

To successfully complete your bank reconciliation, you’ll need your bank statements for the current and previous months as well as your company ledger. An online template can help guide you, but a simple spreadsheet is just as effective. In this case, the reconciliation includes the deposits, withdrawals, and other activities affecting a bank account for a specific period. Any discrepancies lead to making necessary adjustments or corrections. 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.

In the bank reconciliation, outstanding checks are deducted from the balance per bank. (c) A deposit of $5,000 received by the bank (and entered in the bank statement) on 28 May does not appear in the cash book. Hence, at the end of each month, the first thing to do is to consult the bank reconciliation statement prepared at the end of the previous month. Similarly, if a businessman deposits any checks on the last day of the month, these cheques may be collected by his bank and shown on his bank statement three or four days later. Similarly, some checks credited to the ledger account will probably not have been processed by the bank prior to the bank statement date. It’s possible there are additional transactions on the bank statement that you may not have in your records.

In addition, there may be cases where the bank has not cleared the checks, however, the checks have been deposited by your business. Banks take time in clearing checks, so the bank needs to add back the check’s amount to the bank balance. Finally, compare your adjusted bank balance to your adjusted book balance. Since you’ve already adjusted the balances to account for common discrepancies, the numbers should be the same. After including all the amounts identified in Step 3, your statements should display the same final balance.

Due to the overwhelming paperwork that the financial department deals with, it’s possible that some invoices get misplaced or are never recorded. Also, if you’ve made a check payment at the end of the month, it might not clear until the following reporting period. With that information, you can 25 must-know bookkeeping interview questions and answers for 2023 now adjust both the balance from your bank and the balance from your books so that each reflects how much money you actually have. Bank reconciliations may be tedious, but the financial hygiene will pay off. Our team is ready to learn about your business and guide you to the right solution.

If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible). If you suspect an error in your books, see some common bank reconciliation errors below. Add to your accounting record any credit memorandum, that you have not already entered. The deposit slips and canceled checks were compared with the records. Company A issued $1,250 of checks to pay its creditors but they have not yet been cleared by the bank and deducted from the payer’s account. Add back any receipts for deposits in transit from a company to the bank, which have been paid in but not yet processed by the bank.