how to prepare a bank reconciliation

This is where your accounting software can help you reconcile and keep track of outstanding checks and deposits. Most reconciliation modules allow you to check off outstanding checks and deposits listed on the bank statement. Additionally, there may be delays in processing transactions at the bank, resulting in differences between the bank statement and internal cash record. This can lead to numerous errors or discrepancies in bank reconciliation statements.

how to prepare a bank reconciliation

How do you prepare a bank reconciliation statement?

how to prepare a bank reconciliation

If you choose to connect your bank and credit cards to your online account, QuickBooks will automatically bring over transactions and also the opening balance for you. While expensing out the missing amount is an option, it is not the recommended approach. That is because bank reconciliation is a crucial part of the internal control process of a business. Even minute discrepancies can be an indicator of other underlying problems. Therefore, it is better if the bank reconciliation is accurate, and there are no missing amounts.

  1. In addition, there may be cases where the bank has not cleared the cheques, however, the cheques have been deposited by your business.
  2. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled.
  3. When you finish reconciling accounts, QuickBooks automatically generates a reconciliation report.
  4. Once the adjusted balance of the cash book is worked out, then the bank reconciliation statement can be prepared.

Step two: Adjusting your balances

In such a case, you simply need to mention a note indicating the reasons for the discrepancy between your bank statement and cash book. All of this can be done by using online accounting software like QuickBooks. In case you are not using accounting software, you can use Excel to record such items. From the following particulars of Zen Enterprises, prepare a bank reconciliation statement as of December 31, 2021. Therefore, you record no entry in the business’ cash book for the above items.

How to Reconcile in QuickBooks Online

In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench). If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. When you prepare the bank reconciliation statement for the month of November as on November 30, 2019, the cheque issued on November 30 is unlikely to be cashed by the bank. At times, the balance as per the cash book and passbook may differ due to an error committed by either bank or an error in the cash book of your company.

how to prepare a bank reconciliation

Hence, at the end of each month, the first thing to do is to consult the bank reconciliation statement prepared at the end of the previous month. If an error is identified during the reconciliation process, it’s not always at the company’s end. Banks also make errors, and if the mistake can’t be identified, contact the bank. The Transaction Matching software utilizes AI to discover and configure matching rules, enabling automatic line-level transaction matching between different data sources.

Document the Process

So far, the checks in the bank statement are check numbers 100, 101, 103, and 105. At an initial glance, you should notice that check numbers 102 and 104 are missing in the sequence. Moreover, we should also trace if Paul’s Plumbing issued checks beyond check number 105. For the most part, how often you reconcile bank statements will depend on your volume of transactions. 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).

You could get that from a statement, from online banking, or by having the bank send data straight to your accounting software. If you run a current account and a credit card account, you’ll need both statements. You can also cash disbursement journal increase the bank balance in your records by $2,000 to reflect the deposit and then decrease it by $1,000 to account for the uncashed check. This adjustment will bring your balance to $6,975, reconciling the differences.

In the absence of proper bank reconciliation, the cash balances in your bank accounts could be much lower than the expected level. Once you’re done making these adjustments, calculate the revised balance and the amount in your books; the bank statement should be the same. If there’s an undocumented reconciling item, check if the difference pops up from a different period.

That means your account could quickly become overdrawn, with penalties and fees adding up in a matter of days. This is probably the most important step in the entire bank reconciliation process. Most business owners receive a bank statement, either online or in the mail, at the end of the month. Most business accounts are set up to run monthly, though some older accounts may have a mid-month end date. 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.

Such a difference needs to be adjusted in your cash book before preparing the bank reconciliation statement. Designed to keep your bank and your G/L in balance, the bank reconciliation process also helps you correct possible errors, account for uncashed checks, and even locate missing deposits. Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Regardless of how you do it, reconciling your bank account can be a priceless tool in your personal finance arsenal. Bank reconciliation done through accounting software is easier and error-free.