Bank reconciliation

Perform reconciliation to detect any missing or typing errors in payment records

What Is a Bank Reconciliation?

Bank reconciliation is the process of comparing accounting records to a bank statement to identify differences and make adjustments or corrections. In the case of personal bank accounts, like checking accounts, this is the process of comparing your monthly bank statement against your personal records to make sure they match. Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee.

The goal of bank account reconciliation is to ensure your records align with the bank’s records. This is accomplished by scanning the two sets of records and looking for discrepancies. If you find any errors or omissions, determine what happened to cause the differences and work to fix them in your records.

Bank Reconciliation Procedure

On the bank statement, compare the company’s list of issued checks and deposits to the checks shown on the statement to identify uncleared checks and deposits in transit.
Using the cash balance shown on the bank statement, add back any deposits in transit.
Deduct any outstanding checks.
This will provide the adjusted bank cash balance.
Next, use the company’s ending cash balance, add any interest earned, and note the receivable amount.
Deduct any bank service fees, penalties, and NSF checks. This will arrive at the adjusted company cash balance.
After reconciliation, the adjusted bank balance should match with the company’s ending adjusted cash balance.

The Benefits of Reconciling Your Bank Account

Reconciling your bank accounts each month has several benefits:

It helps you keep a clean record of all of your bank transactions. When you reconcile your account, you can be assured there are no missing payments or transactions from your personal ledger, helping you avoid any miscalculations or overdrafts later on.
It provides a clearer picture of your financial health and account standing. Taking the time to go over both your personal records and records from the bank helps you see where your money is coming from and going. It provides a clearer picture of your spending habits, similar to using a budgeting app that tracks your spending.
It can help you avoid any unnecessary fees or suspicious activity. By staying on top of your banking transactions, you can catch any issues early and work to solve them quickly.

How to Do a Bank Reconciliation

It can be helpful to reconcile your bank accounts every month. Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Follow these steps to reconcile your bank accounts each month.

Step 1. Choose Your Method for Reconciliation

How you choose to perform a bank reconciliation depends on how you track your money. Some people rely on accounting software or mobile apps to track financial transactions and reconcile banking activity. Others use a paper checkbook, and balance it each month, to keep a record of any written checks and other transactions. You can also opt to use a simple notebook or spreadsheet for recording your transactions.
Whatever method you prefer, it’s important to keep solid records of every transaction to reconcile your bank account properly.

Step 2. Compare Deposits

Compare your personal transaction records to your most recent bank statement. First, make sure that all of the deposits listed on your bank statement are recorded in your personal record. If not, add the missing deposits to your records and your total account balance.
Next, check to see if all of the deposits listed in your records are present on your bank statement. If the bank didn’t receive a deposit, investigate why it’s missing.
The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account. Look at your history to check for a missed notification. Contact your bank to investigate further and find where the issue lies. Once solved, be sure to adjust your records to reflect deposits as needed.

Step 3. Compare Withdrawals

As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records. If you’re missing transactions in your personal records, add them and deduct the amount from your balance. If you’re finding withdrawals that aren’t listed on the bank statement, do some investigation. If it’s a missing check withdrawal, it’s possible that it hasn’t been cashed yet or wasn’t cashed by the statement deadline.

Step 4. Look for Bank Adjustments

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.
If you find any bank adjustments, record them in your personal records and adjust the balance accordingly. If you’ve been charged a fee in error, contact your bank to resolve the issue.

e.g

Full Stack Zone Company is closing its books and must prepare a bank reconciliation for the following items:

Bank statement contains an ending balance of $300,000 on February 28, 2018, whereas the company’s ledger shows an ending balance of $260,900
Bank statement contains a $100 service charge for operating the account
Bank statement contains interest income of $20
Full Stack Zone issued checks of $50,000 that have not yet been cleared by the bank
Full Stack Zone deposited $20,000 but this did not appear on the bank statement
A check for the amount of $470 issued to the office supplier was misreported in the cash payments journal as $370.
A note receivable of $9,800 was collected by the bank.
A check of $520 deposited by the company has been charged back as NSF.

Example:

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Example 2:

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