How to Do a Bank Reconciliation: Step-By-Step Process

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Compare the Deposits

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. After recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month.

What Is a Bank Reconciliation Template?

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. A cash reconciliation solution is a tool that helps businesses match their financial records with bank statements, ensuring accuracy and preventing errors.

Account Reconciliation Template for Excel

Finally, when all such adjustments are made to the books of accounts, the balance as per the cash book must match that of the passbook. When you prepare the bank reconciliation statement for the month of November as on November 30, 2019, the cheque issued on November 30 is unlikely to be cashed by the bank. Ensure that you take into account all the deposits as well as the withdrawals posted to an account in order to prepare the bank reconciliation statement. This is done by taking into account all the transactions that have occurred until the date preceding the day on which the bank reconciliation statement is prepared. Thus, such debits made by the bank directly from your bank account lead to a difference between the balance as per cash book and the balance as per the passbook. However, in the bank statement, such a balance is showcased as a debit balance and is known as the debit balance as per the passbook.

Example #1 of Bank Reconciliation Statement Template

Navigating credit card reconciliation can be a complex task, but the process becomes much easier with the Credit Card Reconciliation template from Smartsheet for Excel. If you do not have a separate business bank account, it is worth opening one for the following reasons. 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. Errors in calculation or recording of payments are more likely made by business staff than by a bank. Nevertheless, while bank errors are very rare, it is still a possibility.

How Often Should You Do a Bank Reconciliation?

If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month. There are bank-only transactions that your company’s accounting records most likely don’t account for.

The bank sends the account statement to its customers every month or at regular intervals. Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees. Bank errors are mistakes made by the bank while creating the bank statement. Common errors include entering an incorrect amount or omitting an amount from the bank statement. Compare the cash account’s general ledger to the bank statement to spot the errors. Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them.

When the bank debits a depositor’s checking account, the depositor’s checking account balance and the bank’s liability to the customer/depositor are decreased. You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business.

1. A bank may charge an account maintenance fee, typically withdrawn and processed automatically from the bank account.
2. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more.
3. A bank reconciliation worksheet will calculate the differences between the bank statement and the cash book.
4. In the bank reconciliation, outstanding checks are deducted from the balance per bank.
5. This is probably the most important step in the entire bank reconciliation process.
6. Bank accounts for businesses can involve thousands of transactions per month.

In the case of Feeter, the first entry will record the collection of the note, as well as the interest collected. Customer check of $1,250 deposited by Company A has been returned and charged back as NSF (not sufficient funds). 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. Kevin has been writing and creating personal finance and travel content for over six years.

Bank reconciliation helps to identify errors that can affect estimated tax payments and financial reporting. The template provides a column for check numbers, dates, descriptions, debits, credits, and the resulting balance. It even includes video instructions that you can access with a simple click. The Excel Bank Reconciliation Template UK is a friendly companion for your monthly financial reviews.

If you want to prepare a bank reconciliation statement using either of these approaches, you can take balance as per the cash book or balance as per the passbook as your starting point. NSF cheques are an item to be reconciled while preparing the bank reconciliation statement. This is because when you deposit a cheque in your bank account, you consider that the cheque has been cleared by the bank. These outstanding deposits must be deducted from the balance as per the cash book in the bank reconciliation statement. Notice that the bank reconciliation form above still does not balance, even after including the outstanding checks. This means the bank has made an adjustment to your account that has not been recorded in your G/L.

The bank will debit your business account only when the bank pays these issued cheques. One of the primary reasons responsible for such a difference is the time gap in recording the transactions of either payments or receipts. After adjusting all the above items what you get is the adjusted balance of the cash book. As mentioned above, bank overdraft is a condition where a bank account becomes negative as a result of excess withdrawals over deposits. You will be increasing your cash account by $5 to account for the interest income, while you’ll be reducing your cash account by $30 to account for the bank service fee.

The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. When they draw money from your quickbooks set up new company account to pay for a business expense, they could take more than they record on the books. After adjusting the balance as per the cash book, make sure that you record all adjustments in your company’s general ledger accounts. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly.