What bank statement is and why it is essential in your professional or daily life, we have discussed these points in our recent articles. But did you ever save your receipts of expenses? If no, then, start saving them as they are vital. When you receive the bank statement, you ought to match the receipts with the amount exhibited on the bank statement. Bank statement reconciliation is very important.
Bank Statement Reconciliation:
A bank reconciliation is a process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two and to book changes to the accounting records as appropriate.
You should make a habit of reconciliation of bank statement.
Steps To Reconcile A Bank Statement:
There are few steps to reconcile a bank statement, that is as follows and once you learn to reconcile a bank statement carefully, then you will be able to know that which part of a bank statement is to be edited.
Start the bank reconciliation process with a comparison of the company’s bank statement and general ledger cash account. Check off all items that match. The first part of reconciliation guarantees that all items recorded in the general ledger have cleared the company’s bank account.
2. Add Deposits:
Once you are done with the first step of comparison, note all items that remain on the company’s general ledger. Add any deposits in transit to the ending balance. Deposits in transit are deposits that you have recorded in your register but have not appeared on the bank statement.
3. Outstanding Checks:
Deduct outstanding checks from the ending balance. These checks had deducted from your check register, but have not yet cleared the bank.
4. Bank Errors:
Add or deduct any bank errors to the ending balance. Examples would be incorrect deposit amounts and incorrect debits.
5. Check Register Reconciliation:
Deduct bank service charges so service charges could be account maintenance fees, check overage fees if you wrote more checks than you are allotted for the month, wire transfer charges, returned check fees, etc.
6. Interest Earned:
Add interest earned so that if you have an interest bearing account.
7. Check Register Errors:
Add or deduct errors in the check register. So that these errors could include posting a payment that was not actually a cash transaction or omitting a payment.
8. Journal Entries:
You may need to prepare journal entries as part of this reconciliation process. These journal entries will correct any errors found during the bank statement and general ledger comparison. Owners can also use journal entries to post any bank statement items into the general ledger if necessary. Once all journal entries are posted. You may re-run the general ledger cash account to update the ending balance for all newly posted items.
9. Compare Both Statements:
Compare the adjusted bank statement balance per your reconciliation to the adjusted cash balance per the general ledger. The balances should be equal. If the two balances do not match review the steps; verify that the bank balance has been adjusted for all deposits in transit and outstanding checks and that all activity has been properly posted in the company’s general ledger.