What Is Bank Reconciliation?

At the end of this process, the adjusted bank balance should equal the company’s ending adjusted cash balance. Reconciling bank statements with cash book balances helps you, as a business, to know the underlying causes that lead to such differences. Once the underlying cause of the difference between the cash book balance and the passbook balance is determined, you can make the necessary corrections in your books of accounts to ensure accuracy.

Add the amount of deposits in transit and subtract the amount of any outstanding checks from your bank statement’s cash balance to arrive at (and record) an adjusted bank balance. Similarly, add any interest payments or bank fees to your business’s cash accounts to find your adjusted cash balance. A bank reconciliation should be completed at regular intervals for all bank accounts, to ensure that a company’s cash records are correct. Otherwise, it may find that cash balances are much lower than expected, resulting in bounced checks or overdraft fees. A bank reconciliation will also detect some types of fraud after the fact; this information can be used to design better controls over the receipt and payment of cash.

How to Do Bank Reconciliation?

The first step in performing a bank reconciliation is to review the bank statement for any discrepancies or unidentified transactions. This includes reviewing all deposits, withdrawals, fees, and other bank charges made. These amounts, when added or deducted from the cash book balance, give the balance as per bank statement or bank passbook.

Financial institutions are less likely to be forgiving for missed payments or approved overdraft values being exceeded. Balance sheet reconciliations and tests are some of the key tasks performed during annual audits. Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. Nevertheless, on 5 June, when the bank pays the check, the difference will cease to exist.

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This is to confirm that all uncleared bank transactions you recorded actually went through. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled. Following the review and comparison of your internal bank records, with those on the bank statement, you will adjust your accounting records to reflect any discrepancies or unidentified transactions.

• A fine will almost definitely be imposed by the bank on the company that issued the NSF check.
• To successfully complete your bank reconciliation, you’ll need your bank statements for the current and previous months as well as your company ledger.
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• To do this, businesses need to take into account the bank charges, NSF checks and errors in accounting.
• In this situation, you must reverse the original deposit entry, which was a credit to the cash account to reduce the cash balance, along with a debit (raise) in the accounts receivable account.
• In such a case, you simply need to mention a note indicating the reasons for the discrepancy between your bank statement and cash book.