The more frequently you reconcile your bank statements, the easier it is each time. 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. When they draw money from your account to pay for a business expense, they could take more than they record on the books. Once the balances are equal, businesses need to prepare journal entries to adjust the balance per books. 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.

Who’s responsible for bank reconciliations?

1. After adjusting the balance as per the cash book, you’ll need record all adjustments in your company’s general ledger accounts.
2. Banks take time in clearing cheques, so the bank needs to add back the cheque’s amount to the bank balance.
3. A bank statement shows you those transactions and enables you to capture them in your records to reflect all the transactions affecting your business.
4. At times, you might give standing instructions to your bank to make payments regularly on specific days to third parties, such as insurance premiums, telephone bills, rent, sales taxes, etc.
5. This can be accomplished by matching transactions, and then adding or deducting any transactions that do not align to balance the total amounts.

The Substantiation software automates the reconciliation of general ledger and supporting balances. By using pre-configured templates, it simplifies the management of open items and enhances analytical capabilities. The Transaction Matching software utilizes AI to discover and configure matching rules, enabling automatic line-level transaction matching between different data sources. Auto-reconciling transactions reduces human errors, such as keying inaccuracies and adds security to the reconciliation process.

This way, the number of items that can cause the difference between the passbook and the cash book balance is reduced. And as a result, it gets easier to ascertain the correct balance in the balance sheet. 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. When done frequently, reconciliation statements help companies identify cash flow errors, present accurate information to investors, and plan and pay taxes correctly.

Income Statement

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. NSF checks are an item to be reconciled when preparing the bank reconciliation statement, because when you deposit a check, often it has already been cleared by the bank. But this is not the case as the bank does not clear an NFS check, and as a result, the cash on hand balance gets reduced. 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. These outstanding deposits must be deducted from the balance, as per the cash book, in the bank reconciliation statement.

Bank Fees

However, there can be situations where your business has overdrafts at the bank, which is when a bank account goes into the negative as a result of excess withdrawals. Not-sufficient funds (NSF) refers to a situation when your bank does not honour a check, because the current account, on which the check is drawn, has insufficient funds. However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.

Bank Reconciliation Accounting

When all these adjustments have been made to the books of accounts, the balance as per the cash book must match that of the passbook. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook. So it makes sense to record these items in the cash book first in order to determine the adjusted balance of the cash book. Once the adjusted balance of the cash book is worked out, then the bank reconciliation statement can be prepared. The frequency of reconciling bank statements depends on the size and complexity of the business and its transaction volume.

There are times when your business will deposit a cheque or draw a bill of exchange discounted with the bank. These deposited cheques or discounted bills of exchange drawn by your business may get dishonored on the date of maturity. It’s possible there are additional transactions on the bank statement that you may not have in your records. Find out the reason for the additional or missing bank transactions before making adjustments. After you’ve received bank statements, establish the last reconciled transaction from the previous period and begin there.

If your company receives bank statements more frequently, for example, every week, you may also choose to do a bank reconciliation for every statement you receive. 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. There are times when your business will deposit a check or draw a bill of exchange discounted with the bank. These deposited checks or discounted bills of exchange drawn by your business may get dishonored on the date of maturity.

However, there may be a situation where the bank credits your business account only when the cheques are actually realised. This is due to the time delay that occurs between the depositing of cash or a cheque and the crediting of it into materials price variance definition your account. Companies face several challenges when reconciling bank statements to financial activities, so it’s important to highlight common problems you may encounter. Expenses such as overdraft fees or monthly bank fees need to be deducted from your cash balance.