To do bank reconciliation, you would match the balance sheet’s money balances to the matching quantity on your bank declaration, identifying the differences between the two to make changes to the accounting records, deal with any inconsistencies, and determine fraudulent deals.
How To Do Bank Reconciliation?
In this article, you can know about reconcile definition here are the details below;
How Do You Reconcile a Bank Statement?
To fix up a bank statement, the account balance as reported by the bank compared to the basic journal of service.
Companies keep a money book to record both bank deals along with cash deals. The money book’s cash column shows the offered cash, while the bank column shows the money at the bank.
Likewise, the bank keeps an account for every customer. The deposits are recorded on the Cr side in the bank books, while the withdrawals are tape-recorded on the debit side. The bank sends the account declaration to its clients monthly or at routine intervals.
In some cases, these balances do not match. Business requires to identify the reasons for the inconsistency and reconcile the distinctions. This is done to verify every item is represented and the ending balances match.
Bank Reconciliation: A Step-by-Step Guide
You get a bank statement, usually at the end of each month, from the bank. The declaration makes a list of the cash and other deposits made into the business’s checking account. The declaration also includes bank charges such as account maintenance fees.
Once you have gotten it, follow these steps to fix up a bank statement:
1. COMPARE THE DEPOSITS
Match the deposits in business records with those in the bank statement. Compare the amount of each deposit tape-recorded in the debit side of the bank column of the cashbook with the bank statement’s credit side and the credit side of the bank row with the debit of the bank statement. Marks the items appearing in both the records.
2. ADJUST THE BANK STATEMENTS
Change the balance on the bank declarations to the fixed balance. For doing this, you need to include deposits in transit, subtract outstanding checks and add/deduct bank mistakes.
Deposits in transit are gotten and taped by the business but are not yet recorded by the bank. They should be contributed to the bank statement.
Exceptional checks have been written and tape-recorded in the business’s money account but have not yet cleared the checking account. They require to be subtracted from the bank balance. This frequently happens when the checks are written in the last couple of days of the month.
Bank mistakes are mistakes made by the bank while creating the bank statement. Typical mistakes include entering an incorrect amount or omitting an amount from the bank declaration. Compare the money account’s general ledger to the bank declaration to find the mistakes.
3. CHANGE THE CASH ACCOUNT
The next action is to change the money balance in the business account. Adjust the money balances in the business account by adding interest or deducting month-to-month charges and overdraft charges.
To do this, businesses require to consider the bank charges, NSF checks and mistakes in accounting.
– Bank charges are service fee and fees deducted for the bank’s processing of the business’ checking account activity. This can consist of monthly charges or charges from overdrawing your account. They must be subtracted from your cash account. If you’ve made any interest in your checking account balance, they must be contributed to the money account.
– An NSF (not enough funds) check is a check that has not been honoured by the bank due to inadequate funds in the entity’s banks accounts. This means thats the check amount has not been deposited in your bank account and needs to be deducted from your money account records.
– Errors in the money account lead to an inaccurate quantity being entered or omitted from the records. The correction of the error’s will increase or decrease the cash accounts in the books.
4. COMPARE THE BALANCES
After adjusting the balances based on the bank and according to the books, the adjusted amounts must be the same. If they are still not equivalent, you will need to duplicate the procedure of reconciliation again.
As soon as the balances are equal, organizations need to prepare journal entries to adjust to the balance per books.
How Often Should You Reconcile Your Banks Account?
Preferably, you must reconcile your savings account each time you receive a statement from your bank. This is particular done at the end of every month, weekly and even at the end of every day by businesses with a large number of transactions.
Before the reconciliation process, the company should guarantee that they have recorded all deals until the end of your bank declaration. Companies that use electronic banking services can download the bank declarations for the regular reconciliation process instead of manually entering the info.
What Is the Purpose of Bank Reconciliation?
The bank reconciliation procedure provides several advantages consisting of:
– Detecting mistakes such as double payments, missed out on payments, computation mistakes etc.
– Tracking and including bank costs and charges in the books
– Spot fraudulent transactions and theft
– Keeping track of accounts payables and receivables of the business
Bank reconciliation done through accounting software application is simpler and error-free. The bank transactions are imported automatically, permitting you to match and categorize many deals at the click of a button. This make the bank reconciliation process efficient and manageable.