The right steps and technologies can help companies increase the speed and efficiency of their bank reconciliation processes, regaining time for other activities. In the bank reconciliation process, the total amount of outstanding checks is subtracted from the ending balance on the bank statement when computing the adjusted bank balance. In this case, there is no need to adjust the business’s general ledger accounts since the outstanding checks were recorded when they were issued. However, if the business decides to void an outstanding check, you must make a cash debit entry in the general ledger in order to increase the account balance. The accountant calculates that the bank account balance is going to end up at $119,800 once it includes the $13,000 of deposits in transit. At the same time, the cash balance of $120,000 on the company’s books will go down by the $200 in bank fees. She creates a bank reconciliation statement that itemizes both the $200 in unrecorded bank fees and the $13,000 in outstanding deposits.

The first step is for a company to compare its bank account statement with its bookkeeping record. The two figures are rarely the same when a reconciliation starts. Step two is to adjust the bank account balance and step three is to adjust the balance on the company’s books.

Step 4: Find G/L adjustments

More commonly, bank reconciliation is conducted at the end of the week or month. Helping to alert you to fraud, lower your tax, and keep your bookkeeping in order, bank reconciliation is an essential process for small businesses to master. What is bank reconciliation, what is the purpose of a bank reconciliation, how does it work, and how often do you need to do it? Find out more about this crucial accounting process with our definitive guide.

Bank reconciliation starts by comparing the cash a company has on its books to the cash it has on its bank statement. Adjustments are made to each so that the two figures match, and the company has an accurate picture of its cash position and all cash transactions for the period. Someone in a financial position — like a company’s controller or an accounting manager — is usually responsible for overseeing the bank reconciliation process. A staff accountant typically bank reconciliation does the actual reconciling of the company’s accounting records and bank statements, in accordance with segregation of duties best practices. At a big company, there would typically be several people within the accounting department to handle different account reconciliations. It’s common for the owner to do the bank reconciliation at a smaller company. To reconcile a bank statement cash balance, add back deposits in transit and deduct uncleared checks.

What is the Bank Reconciliation Process?

These items are typically service fees, overdraft fees, and interest income. You’ll need to account for these fees in your G/L in order to complete the reconciliation process. Your bank reconciliation form can be as simple or as detailed as you like.

There may be a wide range of reasons why your expenses aren’t listed on your account, such as payments not clearing in time or being made from a different account. If you loaded summary-level historical financial statements as journal entries, you would need to load the outstanding bank transactions first. See my article on loading open bank transactions for help on this process. The account transactions only show 100 transactions in the list.

Make the Cash Account Adjustments

For instance, you paid two vendors by check on January 31. Those payments are recorded in your G/L, but they have yet to hit the bank. You need to subtract both checks from your bank balance, as well as any other checks listed in your check register that haven’t cleared. That means your account could quickly become overdrawn, with penalties and fees adding up in a matter of days. This is probably the most important step in the entire bank reconciliation process.

For example, if you ordered a wire transfer or stopped payment on a check, your bank may have charged fees for this. Similarly, any interest payments you earned will only be reflected in the bank statement and not your business’s general ledger at the end of the month. Bank reconciliation is typically done once a month after bank statements are received. Bank reconciliation is the process of balancing a business’s closing internal book balance with the closing balance on its bank statement.

Final check

Reconciliations are typically done on a monthly basis to ensure that all deposits, withdrawals, and bank fees are accounted for. Discrepancies between a bank statement and book balance are commonplace, but businesses must account for each one and adjust the general ledger accordingly. Performing a regular bank reconciliation enables a business to locate any missing funds, prevent fraud, and verify the cash flow on its balance sheet. A bank reconciliation compares the cash account from your business’s general ledger to the ending balance on the bank statement for the same time period. When you perform a bank reconciliation, you are ensuring your business records have captured all cash transactions accurately. It is also an opportunity to double check your bank’s records to identify any errors in the transactions in your bank account.

Other transactions, like bank fees, will decrease the cash shown on your books. Today, online banking and accounting software offer real-time feeds and automated transaction matching. As a result, bank transactions can be automatically imported into an accounting software, where one is able to categorize and match a large number of transactions with one click of a button.

How To Do Bank Reconciliation

Create a separate login for your accountant to make it easy for her to work with you. You can exchange messages and share documents directly inside QuickBooks, too. With QuickBooks, you won’t waste time spinning your wheels. There are several reports – such as the The Reconciliation Discrepancy Report, the Missing Checks Report, and the Transaction Detail Report – that can help you identify discrepancies quickly. If a business identifies any suspicious activity or unidentifiable transactions.