Bank Reconciliation

Ever wondered why your bank account balance doesn’t always match your company’s financial records? This is where bank reconciliation comes in. It’s a crucial process that ensures your cash records and bank statements are in sync, helping you identify any discrepancies and maintain accurate financial information.

Why is Bank Reconciliation Important?

• Accuracy: Guarantees the accuracy of your financial records, reflecting the true picture of your cash flow.
• Error Detection: Helps identify any errors in your bookkeeping or bank statements, preventing financial issues.
• Fraud Prevention: This can help detect potential fraudulent activity in your bank account, safeguarding your financial assets.
• Improved Financial Control: Provides a clear picture of your cash flow, enabling better financial control and informed decision-making.

The Bank Reconciliation Process:

1. Gather Information:

   • Company Cash Records: This includes your internal records of all deposits made, checks issued, and any bank fees or interest earned during the period covered by your bank statement.
   • Bank Statement: This document issued by your bank provides details of all transactions that have occurred in your account during the same period.

2. Compare Transactions:

   • Match cleared transactions: Meticulously compare each deposit and check recorded in your books with the corresponding entries on the bank statement. Ensure dates, amounts, and payees/depositors match perfectly.
   • Identify outstanding items: These are transactions that appear in one set of records but not the other.

3. Make Adjustments:

   • For company records:
     • Add deposits in transit: These are deposits made by your company but haven’t yet been reflected on the bank statement.
     • Deduct outstanding checks: These are checks issued by your company that haven’t yet been cashed and cleared by the bank.
   • For bank statement:
     • Deduct bank service fees: These are charges levied by the bank for maintaining your account.
     • Add any interest earned: This is the income your account generates based on the average daily balance.

4. Reconcile the Balances:

   • After making necessary adjustments, both your adjusted bank balance and your adjusted cash book balance should ideally match. If they don’t, it indicates a discrepancy that needs further investigation.

5. Record Adjustments:

   • Once the reconciliation is complete, any necessary adjustments should be recorded in your company’s accounting records to ensure your financial statements reflect the accurate information.