Bank Reconciliation Statement: Need, Format and Benefits

Sometimes after receiving a check from debtors, it is deposited at the bank but not recorded in the cash book (on the debit side of the bank column). Sometimes checks are received from debtors and recorded in the cash book (on the debit side in the bank column), but the check does not get sent to the bank for collection. Bank reconciliation processes in which the balance of Bank account in the Books of Company is matched with the balance of our company account in the Books of Bank. In simple words, it is the process of reconciling the balance of bank account in books of the Company with the balance as reflected in the Books of Bank. Since the adjustments to the balance per the BOOKS have not been recorded as of the date of the bank reconciliation, the company must record them in its general ledger accounts. For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items.

Rutherford Inc. has  a difference in the balance as on 31st March 2021 between the bank statement and cash book. There is a difference in the balance as on 31st March 2019 between the bank statement and Cash Book. You are required to prepare a Bank Reconciliation Statement as on 31st March 2019. Below is the extract for the Cash Book and Bank statement for the month of March 2019. In other words, the adjusted balance as per the bank must match with the adjusted balance as per the cash book. Once you have incorporated the adjustments in the bank reconciliation statement, you have to ensure that the totals of both sides mentioned at the bottom match.

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Effective bank reconciliation process offers various advantages to businesses. It allows businesses to identify any expected payments that haven’t been made, and detect fraud. Bank reconciliation can also help businesses quickly identify any disruptions in their cash flow. If you have access to online banking, you can download the bank statements in order to undertake the bank reconciliation process at regular intervals instead of manually entering the information. An outstanding cheque refers to a cheque payment that has been recorded in the books of accounts of the issuing company. But, the cheque has not yet been cleared by the bank as a deduction from the company’s cash balance.

• When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy.
• For each of the adjustments shown on the Balance per BOOKS side of the bank reconciliation, a journal
  entry is required.
• More specifically, you’re looking to see if the “ending balance” of these two accounts are the same over a particular period (say, for the month of February).
• These errors or bank reconciliation problems might differ based on the size of the organization.

If you’re missing transactions in your personal records, add them and deduct the amount from your balance. If you’re finding withdrawals that aren’t listed on the bank statement, do some investigation. If it’s a missing check withdrawal, it’s possible that it hasn’t been cashed yet or wasn’t cashed by the statement deadline. Consider performing this monthly task shortly standard deduction after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Keeping accurate records of your bank transactions can help you determine your financial health and avoid costly fees. Using this simple process each month will help you uncover any differences between your records and what shows up on your bank statement.

Helpful Tips for Bank Reconciliation Adjustments

When done frequently, reconciliation statements help companies identify cash flow errors, present accurate information to investors, and plan and pay taxes correctly. They can also be used to identify fraud before serious damage occurs and can prevent errors from compounding. Deposits in transit are amounts that are received and recorded by the business but are not yet recorded by the bank.

ABC Corp, has a balance of $2000 as per passbook as on 31st march 2021. However, the balance as per cash book as on 31st march 2021 is  $2210. Such cheques 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, in practice there exist differences between the two balances and we need to identify the underlying reasons for such differences. All of this can be done by using online accounting software like QuickBooks. In case you are not using accounting software, you can use Excel to record such items.

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Subtract any drawn checks that have been written to make a payment but not yet cleared by the bank. Mitch has more than a decade of experience as personal finance editor, writer and content strategist. Before joining Forbes Advisor, Mitch worked for several sites, including Bankrate, Investopedia, Interest, PrimeRates and FlexJobs. However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors. Therefore, such adjustment procedures help in determining the balance as per the bank that goes into the balance sheet.

This record of information is maintained on accounting software or in the form of a spreadsheet or logbook. Once the adjusted balance as per cash book is further adjusted for the above items, what you get is net balance as per cash book. Needless to say, this balance must match with the balance as per pass book. Therefore, it becomes necessary to locate the causes for such differences and make necessary accounting adjustments in the cash book to ensure accuracy.

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Bank reconciliations should be performed at least at the end of each month, or more often in a business with a large number of transactions. More frequent reconciliations, weekly or daily, increase efficiency as there are fewer transactions to process at any one time and issues are detected sooner. Prepare a bank reconciliation statement for Company A as of 30 September 20XX. 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. If you find any bank adjustments, record them in your personal records and adjust the balance accordingly.

From the following particulars of Zen Enterprises, prepare a bank reconciliation statement as of December 31, 2021. Therefore, you record no entry in the business’ cash book for the above items. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account. Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement.

Not Sufficient Funds Cheques

Such a process determines the differences between the balances as per the cash book and bank passbook. The balances reflected in the passbook must match with the balance so calculated in the cashbook. This helps to determine if there any accounting changes to be made in books. The bank reconciliation process is performed on a periodical basis according to the volume of transactions.

Today, online banking and accounting software offer real-time feeds and automated transaction matching. As a result, bank transactions can be automatically imported into an accounting software, where one is able to categorize and match a large number of transactions with one click of a button. This significantly reduces the effort that goes into the reconciliation process and enables businesses to verify their cash balances anytime throughout the month. Bank reconciliation is the process of comparing the balance as per the cash book with the balance as per the passbook (bank statement). The very purpose of reconciling the bank statement with your business’ books of accounts is to identify any differences between the balance of the two accounts.

Bank reconciliation statements are often used to catch simple errors, duplications, and accidental discrepancies. Some mistakes could adversely affect financial reporting and tax reporting. Without reconciling, companies may pay too much or too little in taxes.