The company can now take steps to rectify the mistakes and balance its statements. The bank section lists items in transit from the depositor to the bank and bank errors. The book section lists items in transit from the bank, service charges, and depositor errors. The first step involves identifying any deposits and checks that the bank has not processed at the statement date.
Step 3: Work Out the Balance as Per the Cash Book Side of the Bank Reconciliation Statement
One of the procedures for establishing the correct cash balance (and for controlling cash) is the reconciliation of the bank and book cash balances. Journal entries, also known as the original book of entries, refer to the process of recording transactions as debits and credits, and once these are recorded, the general ledger is prepared. As a result of these direct payments made by the bank on your behalf, the balance as per the passbook would be less than the balance as per the cash book. Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement. 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. If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible).
Bank Reconciliation Statement FAQs
Whether what is ancillary revenue this is a smart decision depends on the volume of transactions and your level of patience. If you do your bookkeeping yourself, you should be prepared to reconcile your bank statements at regular intervals (more on that below). If you work with a bookkeeper or online bookkeeping service, they’ll handle it for you. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled.
What is the purpose of a bank reconciliation statement?
- Check that your financial transaction records include all payments and deposits for the transaction period, as well as the final balance.
- This includes payments by customers to your company and payments from your company to employees, contractors, and other goods and services providers.
- Accounting for these delays is key to reconciling the total amounts on the company’s financial statement and the bank statement.
- A bank reconciliation compares a company’s cash accounting statements against the cash it has in the bank.
- The four basic steps involved in the bank reconciliation process are described below.
This relatively straightforward and quick process provides a clear picture of your financial health. Consider reconciling your bank account monthly, whether you set aside a specific day each month or do it as your statements arrive. Once you have identified all the differences between the two statements, identify the source of the discrepancy. Common sources include deposits in transit that have not yet been deposited in your bank account, as well as bank fees that have been withdrawn by your bank but may have been missed in your company records.
Sometimes your current bank account balance is not a true representation of cash available to you, especially if you have transactions that have not settled yet. If you’re not careful, your business checking account could be subject to overdraft fees. There could be transactions unaccounted for in your personal financial records because of a bank adjustment. This may occur if you were subject to any fees, like a monthly maintenance fee or overdraft fee. For interest-bearing accounts, a bank adjustment could be the amount of interest you earned over the statement period. Greg adds the $11,500 of deposits in transit to his bank statement balance, bringing him to $99,500.
Not only does the bank provide basic checking services, but they process credit card transactions, keep cash safe, and may finance loans when needed. We’ll go over each step of the bank reconciliation process in more detail, but first—are your books up to date? If you’ve fallen behind on your bookkeeping, use our catch up bookkeeping guide to get back on track (or hire us to do your catch up bookkeeping for you). If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the mail today, I promise! Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid).
After adjusting the balance as per the cash book, you’ll need record all adjustments in your company’s general ledger accounts. 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. Whereas, credit balance as the cash book indicates an overdraft or the excess amount withdrawn from your bank account over the amount deposited.