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How To Prepare Bank Reconciliation Statement

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How To Do A Bank Reconciliation


Most business owners receive a bank statement, either online or in the mail, at the end of the month. Most business accounts are set up to run monthly, though some older accounts may have a mid-month end date.

If thats the case, the statement can still be reconciled, youll just have to run a general ledger report ending on the same day as the bank statement. For instance, if your bank statement period is 1/11/2020 through 2/10/2020, you would run a general ledger or trial balance for that same period.

Fortunately, many accounting software applications include a bank reconciliation template or form in the application, which allows you to easily reconcile any of your bank accounts that are connected to your software.

Wave Accounting offers easy reconciliation for all connected accounts. Source: Wave Accounting software.

However, for those preferring to not connect their bank accounts to their software, or for any business using software that doesnt offer a connectivity option, here are the steps to follow in order to reconcile all of your bank accounts.

Requirements To Create Brs

A bank reconciliation statement needs the use of both the current and prior months statements, as well as the accounts closing balance. Because transactions may still be occurring on the actual statement date, the accountant normally creates the bank reconciliation statement utilizing all transactions from the previous day.

Reasons For Difference Between Bank Statement And Companys Accounting Record

When banks send companies a bank statement that contains the companys beginning cash balanceCash Flow StatementA cash flow Statement contains information on how much cash a company generated and used during a given period., transactions during the period, and ending cash balance, the banks ending cash balance and the companys ending cash balance are almost always different. Some reasons for the difference are:

  • Deposits in transit: Cash and checks that have been received and recorded by the company but have not yet been recorded on the bank statement.
  • Outstanding checks: Checks that have been issued by the company to creditors but the payments have not yet been processed.
  • Bank service fees: Banks deduct charges for services they provide to customers but these amounts are usually relatively small.
  • Interest income: Banks pay interest on some bank accounts.
  • Not sufficient funds checks: When a customer deposits a check into an account but the account of the issuer of the check has an insufficient amount to pay the check, the bank deducts from the customers account the check that was previously credited. The check is then returned to the depositor as an NSF check.

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.

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Preparation Of Bank Reconciliation Statement

by Prince Kumar

It is very easy to prepare the bank reconciliation statement. While preparing the bank reconciliation statement the accountant has to go step by step. We are describing the various steps to be taken while preparing of bank reconciliation statement:-

  • First of all, the accountant must check that the opening balances of bank statement and bank book are matching with the balances as per the last bank reconciliation statement.
  • All entries must be checked very carefully and ticked in the bank statement and the bank book.
  • Pending entries in last bank reconciliation also must be checked and make sure that all the entries are ticked.
  • Then make the list of non-ticked entries on a separate piece of paper.
  • Now, to reconcile the balances of bank statement and bank book, the accountant has to take a base of one balance either as per bank statement or as per bank book. Here, we are taking the balance as per bank book as base balance and we are assuming that the balance as per bank book is a debit balance.
  • Add the amount of cheques issued by us but not presented for payment.
  • Add the amount directly credited by the bank in our account.
  • Add the amount of cheque issued by us but dishonoured by the bank.
  • Subtract the amount of cheques deposited by us but not cleared.
  • Subtract the amount of cheques deposited by us but dishonoured.
  • Subtract the amounts which are debited directly in our account.
  • Following illustrations will clarify the above matter in a better way:-


    Adjusting Journal Entries Bank Reconciliation

    Prepare bank reconciliation statement by Jawadhaider60 ...

    The following are examples of common changes to the balance per book:

    • Bank costs or service charges for maintaining the account, fees for returned checks, wire transfer processing, check to print, and so on.
    • Earned bank interest
    • Payments on loans
    • Supplier and other electronic costs or remittances
    • Customer checks that were placed but are now being returned due to a lack of money

    Bank Service Charges would be debited, and Cash would be credited in the journal entries for the bank fees.

    The journal entry for a cheque returned due to insufficient funds will debit Accounts Receivable and credit Cash.

    The companys interest earnings will be recorded as a debit to Cash and a credit to Interest Income.

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    Example Of Bank Reconciliation Statement

    A company, ABC Co., receives a bank statement from one of its banks stating the balance in the bank account to be $2,650. On the other hand, the bank balance in the bank book of the company is $3,200. Since both balances are different, bank reconciliation should be prepared. Since the company has already obtained the balance from both the documents, the first step for bank reconciliation is complete.

    The next step is to identify any unrecorded differences. The company found that there are $300 bank charges, $250 interest charges, and a $1,000 deposit by a customer, who didnt notify ABC Co. of the deposit. Since these are all unrecorded differences, ABC Co. must record them in its accounting system. Therefore, the bank book balance would change as follows.

    Adjusted bank book balance 3,650

    The next step is to identify timing differences. The company found there are $3,000 deposits in transit and $2,000 outstanding checks. As mentioned above, deposits in transit are cheques that the bank has not cleared yet. While outstanding checks refer to checks that have been paid by the company but not presented by its suppliers. Therefore, the company must adjust these differences on the bank reconciliation statement.

    Bank statement balance 2,650

    The last step is to recheck the balances. Since the bank statement balance according to the bank reconciliation matches the bank balance in the bank statement, the reconciliation can be considered correct.

    First Check Your Two Cash Balances

    You have two cash balances to check: the cash recorded on your bank statements and the âcash accountâ section of your bookkeeping records.

    More specifically, youâre looking to see if the âending balanceâ of these two accounts are the same over a particular period .

    The balance recorded in your books and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books.

    One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts. Or there may be a delay when transferring money from one account to another. Or you could have written a NSF check and recorded the amount normally in your books, without realizing there wasnât insufficient balance and the check bounced.

    Two important terms to know:

  • Outstanding check/withdrawal. This is a check or money transfer youâve issued and recorded on your books which is still uncleared.

  • Outstanding deposit/receipt. This is money that has been received by your company and recorded on the books, but which has not been processed by the bank.

  • Thereâs nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them.

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    Create List Of Deposits

  • Record the ending balance per the bank statement. Below the ending balance per the bank statement, create a detailed list of deposits in transit a deposit that was made but not yet recorded by the bank. For example, if you made a deposit using a night drop box or ATM on the last day of the month, that deposit will not be posted to your bank account until the next business day, which also happens to be the first day of the next month. Include in your list the date the deposit was made, from whom the check was received and the method of deposit.

  • How To Prepare Bank Reconciliation Statement Example

    How to prepare a bank reconciliation statement Worked Example.

    Following example illustrates the ways in which the cash balances in the bank account and the company records are adjusted using the bank reconciliation statement. This is done using the information given below.

    XYZ Companys bank statement which is dated at Dec 31, 2013 indicates a balance of $24,594.72 and the companys cash account indicates a balance of $23,196.79. Following additional information is also available:

    • Below cheques are outstanding which has been issued by the company to its customers.
    • An amount of $400.00 which has been deposited on Dec 31 does not appear on bank statement.
    • The bank returned an NSF cheque of $850 with the bank statement.
    • The bank service charges are amounted to $50.
    • Company has earned an interest income of $1,237.22 which has been recorded only in the bank account.
    • The bank has collected a note receivable on behalf of the company an amount of $550, which includes $50 interest income. The bank charged a collection fee of $10.
    • A deposit of $430 was incorrectly entered as $340 in the companys cash records.

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    What Is Bank Reconciliation Formula

    Bank Reconciliation is one of the most important tasks of every Accounting and Finance Department in the Company. What is Bank Reconciliation? Bank reconciliation processes in which the balance of Bank account in the Books of Company is matched with the balance of our company account in the Books of Bank. In simple words, it is the process of reconciling the balance of bank account in books of the Company with the balance as reflected in the Books of Bank. This process is performed in every company. This helps to determine if there any accounting changes to be made in books. The bank reconciliation process is performed on a periodical basis according to the volume of transactions. If the volume of the transaction is high, then Bank Reconciliation is to be performed on a monthly basis or fortnightly or on a daily basis. If the volume of transactions is less then it can be performed on a quarterly or half-yearly or yearly basis.

    What are the reasons for the mismatch of the Balance of Bank account in Books of Company with Balance in the books of Bank?

    Below are entries due to which reconciliation process is performed:

    2. Deposit in Transit: Deposit in Transit is also one of the reasons for differences in the balances on reconciliation date. In this, the company has deposited cheques or cash and passed entry in Books, but the bank has not credited due to the banking clearing procedure. This is caused due to time lag.

    Benefits Of Preparing Brs With Accounting Software

    Every accountant has just one wish: Not even a penny should go out of my sight. The price paid to achieve it is incomparable at times. Matching 100s of e-statement entries with book of accounts test the patience of matchmakers, here, accountants. Simply put, it demands huge manual effort as they are error prone. Tech providers understood the stress and automated e-statement reconciliation with accounting software. From then on, tech equipped accountants started doing wonders.

    Waving goodbye to errors, screen switching and rechecking

    Identifying the missing entries in the book of accounts in a click

    Saving up to 90% effort spent on reconciliation

    By the way, those are the top three reconciliation benefits enjoyed by the customers of Gofrugal

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    Example #: Cash Book Balance More Than Bank

    ABC Corp, has a balance of $2000 as per passbook as on 31st march 2021. However, the balance as per cash book as on 31st march 2021 is $2210.

    Lets Understand the Transaction Details

  • A check of $500 was deposited, but it is not yet processed by the bank.
  • Bank charges of $60 were recorded in the passbook, but not in the cash book.
  • Checks worth $300 were issued, but not presented.
  • Bank interest of $50 was recorded in the passbook, but not in the cash book.
  • Solution #1: Bank Reconciliation Statement Format

    S And Rules For Preparing A Bank Reconciliation Statement

    Prepare bank reconciliation statement by Waqasabid007

    The process for preparing the bank reconciliation statement follows the below steps or method:

    Compare the both opening balances of cash book and bank statement, these might be different because of un-presented or un-credited cheques from the previous period. Locate them on the bank statement and tick off these and opening balances as now agreeing.

    Compare the debit side of the cash book with the credit side of the bank statement and the credit side of the cash book with the debit side of the bank statement . Place a against the items which appear in both records.

    Identify the un-ticked items on the debit side of the bank statement and enter them on the credit side of the bank column of the cash book. They can then be ticked off too.

    Identify the un-ticked items on the credit of the bank statement and enter them on the debit side of the bank column of the cash book. They can then be ticked off too.

    Correct any errors or mistakes in the cash book.

    Calculate revised and corrected balance of the bank column of the cash book. This updated balance is shown in the balance sheet as cash at bank.

    Start the bank reconciliation statement with the up-dated cash book balance .

    If bank reconciliation statement is started with a debit balance then add any un-presented cheques and deduct any un-credited cheques. The opposite rules apply if it is started with a credit balance.

    The resulting figure should be equal the balance shown as per bank statement.

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    Overview: What Is Bank Reconciliation

    A bank reconciliation helps ensure that your ending bank statement and your general ledger account are in balance.

    Remember, your cash or bank accounts in your general ledger should reflect the same activity that is on your bank statement. If it doesnt, you need to determine whats missing. Figure out if its missing from the bank statement balance or the general ledger balance, and then reconcile the two numbers.

    Make The Cash Account Adjustments

    Now its time to adjust the cash balance in the business account. The bank adds its own fees and interest that must be accounted for and recorded in a companys books as well.

    Add any interest earned and notes receivable amount. You must also deduct any monthly service charges, overdraft fees, NSF checks, and accounting errors. This should either increase or decrease the cash account in the books, as you are reconciling both sides.

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    Whos Responsible For Bank Reconciliations

    If you do your bookkeeping yourself, you should be prepared to reconcile your bank statements at regular intervals . If you work with a bookkeeper or online bookkeeping service, theyâll handle it for you.

    You only need to reconcile bank statements if you use the accrual method of accounting. This is to confirm that all uncleared bank transactions you recorded actually went through.

    If, on the other hand, you use cash basis accounting, then you record every transaction at the same time the bank does there should be no discrepancy between your balance sheet and your bank statement.

    Not sure which accounting method youâre using? This article on cash vs. accrual accounting will make it clear.

    In huge companies with full-time accountants, thereâs always someone checking to make sure every number checks out, and that the books match reality. In a small business, that responsibility usually falls to the owner .

    Benefits Of Preparing A Brs

    How to prepare bank reconciliation Statement

    Accounting errors could lead to circumstances that are more than just embarrassing when the cheques bounce or companies start getting annoying calls from creditors or suppliers for payments that are already released.

    Bank reconciliations assist you in spotting fraud and reducing the risk of transactions that could cause penalties and late fees. BRS offers several advantages to a business which includes:

    • Detecting errors: A bank reconciliation helps you in spotting accounting errors that are common to every business. These mistakes include errors such as addition and subtraction, missed payments and double payments.
    • Tracking Interest and Fee: Banks might add interest payments, fees or penalties to your account. Monthly bank reconciliation allows you to add or subtract such amounts in your books.
    • Detecting Fraud: You may not be able to prevent employees from stealing your money once, however, you could prevent it in future. Bank reconciliations statement helps you in detecting and spotting fraudulent transactions. It is advisable to employ an independent person to perform the reconciliations for preventing the accounting employee from falsifying your books and reconciliations.
    • Tracking Receivables: BRS allows you to confirm all your receipts, assisting you to avoid awkward situations and also identifying entries for receipts that you didnt deposit.

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    Purpose Of Bank Reconciliation

    A bank reconciliation is there to compare your records to those of your banks. It checks if there are any two different sets of records for you and the bank in cash transactions. The ending balance of your version will be called the book balance. The banks version for the same is called bank balance.

    Increase The Bank Balance To Account For Any Unpaid Deposits

    There may be a time lag between when you make a deposit at the bank and when the deposit is reflected as an increase to your bank account. The wait may be minor if you deposit monies at an ATM or a bank branch. The wait may be longer if you send a deposit.

    Additional Tips:

    • You immediately raise your cash account by the amount of the deposit. Due to the banks delay in posting the deposit, you have a reconciling item.
    • To represent the correct amount of cash, the bank statement balance would need to be credited .

    Short and simple example: Assume you have $5,000 in your bank account. On July 31st, you deposited $1,500. The $1,500 deposit is not reflected on your July bank statement. To reconcile the amount, add $1,500 to the bank statement balance, bringing the total to $6,500. The $1,500 is a balance-sheet item.

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