How to Prepare a Bank Reconciliation: 8 Steps with Pictures

These include our visual tutorial, flashcards, cheat sheet, quick tests, quick test with coaching, and more. There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them. In some situations, a bank will refuse to deposit a check, usually because it is written on a foreign bank account. You would have lowered your bank balance by the amount of the cheque when you wrote it in favor of the creditor.

Your current and prior months’ bank statements, along with your company ledger, are required to perform your bank reconciliation correctly. If you’re interested in automating the bank reconciliation process, be sure to check out some accounting software options. In this day of electronic banking, many people believe completing a bank reconciliation is no longer necessary. However, small business owners and bookkeepers need to remember that yes, banks do make mistakes, and one of the best ways to find those mistakes is by reconciling all of your bank accounts monthly. There are bank-only transactions that your company’s accounting records most likely don’t account for.

Most Common Problems In Bank Reconciliation

A company prepares a bank reconciliation statement to compare the balance in its accounting records with its bank account balance. A bank reconciliation statement is a valuable internal tool that can affect tax and financial reporting and detect errors and intentional fraud. The information on your bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month.

There are times when the bank may charge a fee for maintaining your account. Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account. Such errors are committed while recording the transactions in the cash book.

What is Bank Reconciliation?

If you work with a bookkeeper or online bookkeeping service, they’ll handle it for you. It’s advisable to consult with a financial professional to advise on the appropriate journal entries for your bank reconciliation adjustments. They will ensure all is as it should be and no data is incorrect or missing. A bank reconciliation statement might become a nuisance if you run a large and thriving firm with a lot of transactions using a single bank account.

• The reconciliation statement allows the accountant to catch these errors each month.
• Bank reconciliation (BR) is the process of reconciling bank account balances in an entity’s accounting books with the balances on its most recent bank statements.
• Reconciling the two accounts helps identify whether accounting changes are needed.
• The bank sends the account statement to its customers every month or at regular intervals.
• Those payments are recorded in your G/L, but they have yet to hit the bank.