What is Bank Reconciliation Steps and Examples

Bank reconciliation plays a crucial role in the internal control process of a company and helps in detecting fraud and error in the process. For some companies, though, preparing the bank reconciliation again may not be an option. For companies with a high number of bank transactions, preparing it every month or, if possible, several times in a month is better.

Using the following information, we’re going to complete a bank reconciliation for ABC Company for December 2024. This includes all deposits made into the bank account, checks written, withdrawals made, and any bank charges or other fees. Again, the only way to find out about the error or omission is to complete a bank reconciliation.

Regularly reconciling your bank statements is key for keeping your financial records accurate and spotting any issues. Doing bank reconciliations often is vital for accurate financial records. Manual bank reconciliation processes are quickly becoming obsolete as businesses discover the power of bank statement reconciliation software.

Financial automation

This journalizing process ensures your books stay accurate. The adjusted bank balance and adjusted book balance must match. Use this table as a quick reference when reviewing your transactions or working with a reconciliation worksheet. Consider using accounts payable automation software to streamline the process. Monthly reconciliation is standard for most small businesses.

• Accounting software enables a business to perform bank reconciliations on a more frequent basis.
• To record outstanding checks during a bank reconciliation, identify any checks issued but not yet cleared by the bank.
• Completing a bank reconciliation takes into account things like checks that have not yet been cashed, bank fees recorded on the bank account but not yet in the general ledger, and deposits that may be in transit.
• For example, say the bank charged your business $25 in service fees but it also paid you $10 in interest.
• While it may seem tedious, monthly reconciliation saves time and money by identifying problems early.
• As mentioned above, timing differences do not require any adjustments in the bank book balance.

? 1. Accuracy of Financial Records

If you’re using accounting software, it may give you the option to connect your bank account so transactions are automatically downloaded and categorized. The frequency of bank reconciliation can vary based on your company’s specific needs. The process also enables the company to record any interest payments the account has earned or fees the bank has charged. Making sure a company’s and its bank’s listed balances align is also a way to ensure the account has sufficient funds to cover company expenditures.

• The bank statement showed a balance of $4,975, different from the company’s records.
• Completing these journal entries will ensure that your beginning balance for January will reflect the actual reconciled total.
• Financial errors and fraud cost businesses an alarming 5% of their annual revenue—imagine losing $50,000 for every million in revenue.
• A bookkeeper or accountant usually performs the reconciliation, while an owner or manager reviews it.
• Make reconciliations a regular part of your routine.
• We will store your data for as long as you want to receive promotional information from us.
• The easiest way to find these adjustments when completing a bank reconciliation is to look at the bank fees in your bank statement.

There will be amounts that appear in one set of records but not the other. If you can’t spare the time or stand the monotony, there’s an alternative. Bank reconciliation can be trying work.

Expertise – Skilled professionals experienced in bank reconciliations and all major accounting software? Bank reconciliations—commonly known as bank recs—are a critical part of maintaining accurate and reliable financial records. Now, turn your attention to your recorded cash balance and identify transactions recorded in your books that don’t appear on your bank statement. These reconciliations typically involve live transaction matching between an accounting system and a live feed from a financial institution, and reduce the risk of errors and fraud. Auditors use bank reconciliation statements to perform the company’s year-end auditing. Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates.

You adjust the bank balance for timing differences, deposits in transit and outstanding checks. The future of bank reconciliations is looking bright with streamlined workflows, less busy work, and a greater rate of success! Technology is making the entire bank reconciliation process more controllable, efficient, and reliable. There are several benefits to the bank reconciliation process.

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Gather the bank statement and GL, match transactions, list timing differences, post bank fees, interest, and NSF items, then correct any errors. Prior to reconciliation, a company should make sure all transactions have been recorded up to the end of the bank statement. A bank reconciliation statement compares the bank’s records with the company’s internal records.

Step 4: Account for interest and fees

Even perfect reconciliation preparation fails if review procedures are inadequate. Missing or inadequate documentation makes reconciliation investigation difficult and creates audit findings. Data entry mistakes are among the most common reconciliation challenges. Digital documentation makes audit preparation faster and reduces the risk of lost or misfiled paper records. Your reconciliation documentation is the evidence that your controls actually function as designed.

Gathering Financial Documents

Without it, even small mistakes can make financial health look worse. Leaders need correct data to know if they have enough money, manage debt, and plan budgets. Finding issues early helps avoid bigger mistakes in financial reports. Companies with automated software say they save up to 40% time compared to doing it by hand. Bank reconciliation is more than just a task. This helps avoid mistakes and improves financial control.

With the adjustments made, ABC Company’s ending bank balance and ending general ledger balance now match; at least on paper. For instance, you may have written a check to the plumber who was in last week to fix a leaky faucet and failed to record it in your accounting software application. Every active checking account or other business account your business currently has should be reconciled at the end of the month. Efficiency – Faster, smoother reconciliation processes? While knowing how to do a bank rec is essential, it can be time-consuming—especially as transaction volumes grow.

The goal is to identify and resolve any discrepancies, ensuring that the financial records accurately reflect the actual cash position. This comprehensive guide on how to do bank reconciliation aims to demystify the process, providing step-by-step insights for businesses and individuals alike. Keep reading for advice from our CPA reviewer on how to account for service fees and bank statements!

What is bank reconciliation and why it matters is huge. It helps spot discrepancies, missing or extra transactions, bank mistakes, or fraud. This blog will help you understand why bank reconciliation is important. Download our data sheet to learn how you commission income can run your processes up to 100x faster and with 98% fewer errors. Download our data sheet to learn how to automate your reconciliations for increased accuracy, speed and control.