How To Prepare A Bank Reconciliation

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A bank reconciliation is a critical tool for managing your cash balance. Reconciling is the process of comparing the cash activity in your accounting records to the transactions in your bank statement. This process helps you monitor all of the cash inflows and outflows in your bank account. The reconciliation process also helps you identify fraud and other unauthorized cash transactions.

Bank Reconciliation: A Step-by-Step Guide

You receive a statement , typically at the top of every month, from the bank. The statement itemizes the cash and other deposits made into the bank account of the business. The statement also includes bank charges like for account servicing fees.

Once you’ve received it, follow these steps to reconcile a bank statement:


Match the deposits within the business records with those within the statement . Compare the quantity of every deposit recorded within the accounting of the bank column of the cashbook with accounting of the statement and accounting of the bank column with the accounting of the statement . Mark the things appearing in both the records.


Adjust the balance on the bank statements to the corrected balance. For doing this, you want to add deposits in transit, deduct outstanding checks and add/deduct bank errors.

Deposits in transit are amounts that are received and recorded by the business but aren’t yet recorded by the bank. they need to be added to the statement .

Outstanding checks are people who are written and recorded in brokerage account of the business but haven’t yet cleared the checking account . they have to be deducted from the bank balance. This often happens when the checks are written within the previous couple of days of the month.

Bank errors are mistakes made by the bank while creating the statement . Common errors include entering an incorrect amount or omitting an amount from the statement . Compare the cash account’s ledger to the statement to identify the errors.

Get bank records

You need an inventory of transactions from the bank. you’ll get that from a press release , from online banking, or by having the bank send data straight to your accounting software. If you run a accounting and a mastercard account, you’ll need both statements.

Get business records

Open your ledger of income and outgoings. This could be during a logbook, on a spreadsheet, or in an accounting software package. Some accounting software will pull in bills and receipts with the assistance of knowledge capture tools and extract the info automatically.

Adjusting the statement Balance

Examine the statement balance. Access your statement as soon as possible. If you’ve got online access to your account, your statement should be available shortly then Judgment Day of the month. once you get the statement, note the month-end balance. Your goal is to reconcile any differences between the bank balance and your brokerage account records. this suggests checking whether each transaction appears both in your own records and on your statement .

  • during a statement , debits ask withdrawals from the checking account , and credits ask deposits to the checking account . These definitions are different from how the accounting profession uses these terms.
  • If an item appears only in one place (the statement or your cash account), it’s a “reconciling item”. Your goal is to spot the rationale the 2 records don’t match, and proper them until they are doing .
  • A bank reconciliation are often thought of as a formula. The formula is (Cash account balance per your records) plus or minus (reconciling items) = (Bank statement balance). once you have this formula in balance, your bank reconciliation is complete.
  • Your brokerage account balance defined as your book balance (or balance per book). The statement balance is that the balance per bank. The difference between these two balances is thanks to reconciling items.

Adjusting the overall Ledger Balance

Confirm that each one deposits have posted. A business should print an inventory of all deposits made for the month. the corporate should also review all deposits slips. If you’re reconciling your personal account, you ought to have an inventory of deposits in your checkbook- along side your deposit slips.

  • once you receive your statement , review the deposits that posted to the bank’s records for the month.
  • Review all of your checkbook deposits so as by date. Confirm that every deposit posted to the statement .
  • you ought to also review any deposits in transit at the top of the prior month. Confirm that those deposits posted to the statement for the present month.
  • once you finish your review, you ought to create an inventory of every deposit that has not posted to the checking account . That list should include the deposit amount and therefore the date of the deposit.
  • the entire dollar amount represents your deposits in transit for the month. Deposits in transit are a reconciling item.

Check for any errors you’ve made during the month

As you compare your brokerage account activity to the bank, you’ll find errors that you simply made. for instance , you would possibly post the incorrect dollar amount for a check or deposit to your cash records. Those errors will create a reconciling item.

  • If your balance is off by a multiple of nine (for example, $270 or $630), you’ve got likely made a transposition error. this suggests you mistakenly switched the order of two digits during a deposit. for instance , you’ll have filled out a check for $310 but recorded it in your records as $130.
  • Once you finish all of your reconciliation work, your (cash account balance) plus or minus all (reconciling items) should equal the (balance per the bank statement). If that formula doesn’t equal, review your work until you account for all of the reconciling items correctly.
How To Prepare A Bank Reconciliation

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