Bank Reconciliation: Purpose, Example, Process

A bank reconciliation statement can help you identify differences between your company’s bank and book balances. As you know, the balances in asset accounts are increased with a debit entry. In accounting, a company’s cash includes the money in its checking account(s). To safeguard this critical and tempting asset, a company should establish internal controls over its cash.

However, as a business owner, it’s important to understand the reconciliation process. The deposit could have been received after the cutoff date for the monthly statement bank reconciliation release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account.

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If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. 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.

Before preparing a BR, the disparity must be removed by changing the company’s cash book. When you add in the fact that you and your bank have different dates for numerous transactions, the reconciliation procedure becomes difficult. For starters, too many transactions will result in a long list of transactions to review. Second, the more the number of transactions, the more difficult it will be to match them. The creditor, on the other hand, may encash that check after a month has passed since you wrote it.

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However, anything that affects the G/L such as unexpected deposits, interest income, or service fees will need to be recorded. The easiest way to find these adjustments when completing a bank reconciliation is to look at the bank fees. You’ll also want to look at any miscellaneous deposits that haven’t been accounted for. Once you locate these items, you’ll need to adjust your G/L balance to reflect them. Notice that the bank reconciliation form above still does not balance, even after including the outstanding checks.

As previously stated, the transactions in the internal accounting system are compared to the actual bank or credit card statement, with the understanding that they should, for the most part, mirror each other. When they don’t, it’s time to conduct an investigation and, if necessary, make improvements. For instance, the bank charged your business $30 in service fees, but it also paid you $5 in interest.