Bank Reconciliation: Purpose, Example, Process

In addition to this, the reconciliation process also helps keep track the occurrence of fraud, which can help you control your business’ cash receipts and payments. There will be very few bank-only transactions to be aware of, and they’re often grouped together at the bottom of your bank statement. (If you’re in the middle of reconciling, stay on the page you’re on and skip to step 4).

Compare your bank statements

This way, you can ensure your business is in solid standing and never be caught off-guard. This is a simple data entry error that occurs when two digits are accidentally reversed (transposed) when posting a transaction. For example, you wrote a check for $32, but you recorded it as managerial accounting definition $23 in your accounting software. Book transactions are transactions that have been recorded on your books but haven’t cleared the bank. As a small business, you may find yourself paying vendors and creditors by issuing check payments.

Example 1: Preparation of Bank Reconciliation Statement Without Adjusting the Cash Book Balance

To reconcile means to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another. More specifically, a bank reconciliation means balancing your bank statements with your bookkeeping. When reconciling an account, the first bit of information you need is the opening balance. If you choose to connect your bank and credit cards to your online account, QuickBooks will automatically bring over transactions and also the opening balance for you. Just like balancing your checkbook, you need to review your accounts in QuickBooks to make sure they match your bank and credit card statements. You need to determine the underlying reasons responsible for any mismatch between balance as per cash book and passbook before you record such changes in your books of accounts.

If there are transactions that haven’t cleared your bank yet and aren’t on your statement, wait to enter them. All of your bank and credit card transactions automatically sync to QuickBooks to help you seamlessly track your income & expenses. If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible). If you suspect an error in your books, see some common bank reconciliation errors below. Finally, compare your adjusted bank balance to your adjusted book balance. Since you’ve already adjusted the balances to account for common discrepancies, the numbers should be the same.

How Often Should You Reconcile Your Bank Account?

1. This way, the number of items that can cause the difference between the passbook and the cash book balance is reduced.
2. So it makes sense to record these items in the cash book first in order to determine the adjusted balance of the cash book.
3. There are apps for doing bookkeeping, like QuickBooks Online, but they don’t replace critical thinking and years of experience that you can get when outsourcing to an accounting firm.
4. We offer reconciliation reports, discrepancy identification, and live accountants to work with for ease and confidence when closing your books.

To see all of your adjustments on the list, you can review a Previous Reconciliation report for the reconciliation you adjusted. This will show you cleared transactions and any changes made after the transaction that may not show in your discrepancies. Make sure you enter all transactions for the bank statement period you plan to reconcile.

Timing Differences in Recording of Transactions

These time delays are responsible for the differences that arise in your cash book balance and your passbook balance. If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month. If the balances do not reconcile, you can check through your accounting records to see where the discrepancy is.

This could also be an indication that someone has fraudulently altered the figures on the statement and recorded them as part of your company’s records. You should perform monthly bank reconciliations so you can better manage your cash flow and understand your true cash position. Read on to learn about bank reconciliations, use cases, and common errors to look for. If you reconciled a transaction by mistake, here’s how to unreconcile it. If you adjusted a reconciliation by mistake or need to start over, reach out to your accountant.

Follow our social media accounts to get the latest news and opinions from our industry experts. After you reconcile, you can select Display to view the Reconciliation report or Print to print it. Here are a few things you can do to make your reconciliation easier. Before you start with reconciliation, make sure to back up your company file.