How to Do a Bank Reconciliation: Step-By-Step Process

Account reconciliation is a major accounting process that compares financial records with an actual bank balance to ensure the figures are fully balanced. Reconciliation refers to the process of comparing your checking account with the ledger or bookkeeping record. If everything matches up, you can be almost certain that your account is accurate and that you have a valid record of all transactions. 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.

This will mean you can access it from your phone, allowing you to make note of your transactions while you’re out and about. You also will be able to access your spreadsheet from your laptop when you’re ready to balance it. One of the reasons why balancing your checkbook has become passé is because most people no longer carry a checkbook, or even paper and pencil.

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This eliminates the need for manual data entry, saving you valuable time and effort. If you struggle to get into this kind of habit, a number of modern banking conveniences can help remind you to check in once a day. For instance, the majority of modern banks offer smartphone apps that allow you to easily check your balance, see your transactions and even deposit checks via your phone.

But what are you primarily doing when you reconcile your checking account? Read on to discover more about reconciling checking accounts and what to do if things get tricky. There should be a reconciliation form on the back of this statement, which you can use to complete a reconciliation. There are many reasons why the account reconciliation process is important. First and foremost, it can help to determine whether there has been a potential error in the accounting process and/or inside the general ledger. What’s more, it can detect the accounts that need to be reconciled.

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If there are still discrepancies after you’ve made the necessary adjustments, you might need to consider an audit to rule out fraud or hold the responsible parties accountable. However, there are a couple of downsides to using a daily check-in as an alternative to checkbook balancing. For one, if you still use paper checks, this method does not account for them.

Checking account reconciliations generally requires two pieces of data to match. The first one is provided by the records a business owner has and the second one is made by the third party such as a bank . If you match up these two reports, you should see zero difference between the two documents — it means they have the same value on a specific date.

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The overdraft how to calculate overtime pay is the amount that you’re overdrawing from your account. You can do this by looking at the total balance of your account and the amount of the overdraft. Managing Editor, Global Data and Automation for Forbes Advisor. Mitch has more than a decade of experience as personal finance editor, writer and content strategist. Before joining Forbes Advisor, Mitch worked for several sites, including Bankrate, Investopedia, Interest, PrimeRates and FlexJobs.

One of the most overlooked steps in the accounting process is completing a bank reconciliation. We’ll take you step-by-step through the process of completing bank reconciliations for your business. Compare your monthly checking account statement to your check register, making sure each withdrawal and deposit match. So what do you do if your numbers and the bank’s numbers don’t align? That’s when it’s time to backtrack through your records and the bank’s transaction history to see where the discrepancy is.

More often though, they’ll reconcile accounts indirectly by looking at the aggregate of these transactions in their income statements and balance sheets. The goal of the account reconciliation process is to ensure cash inflows and outflows always correspond. In this case, a company will compare the accounts payable captured in its books with the balance provided in documentation from their vendors. This ensures there are no major discrepancies between the amount a vendor charges and the goods and services the company actually received.

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Check that all incoming funds have been reflected in both your internal records and your bank account. Find any deposits and account credits that haven’t yet been recorded by the bank and add these to the statement balance. If the bank shows money deposits not reflected in your internal books, make the entries. If you have an interest-bearing account and you are reconciling a few weeks after the statement date, you may need to add interest as well.

Any unexplained differences between the two records may be signs of financial misappropriation or theft. Getting accurate accounting and records is one of the most important tasks for any business owner or accountant. Neglecting this essential step leaves your company’s finances open to manipulation and potential fraud.

Missing transactions

The easiest way to check for this is to print a check register for the month and compare it to the checks that have cleared the bank. Any checks that have been issued that haven’t cleared the bank must be accounted for under your bank balance column. Correcting any problems during the process of proving out will minimize problems you may face reconciling the cash accounts when that bank statement actually does arrive.

The statement also includes bank charges such as for account servicing fees. Completing a bank reconciliation entails matching the balances on your bank statement with the corresponding entries in your accounting records. The process can help you correct errors, locate missing funds, and identify fraudulent activity.

• This relatively straightforward and quick process provides a clear picture of your financial health.
• Reconciling is crucial to ensuring the accuracy of your financial reports.
• Companies typically perform customer reconciliation before issuing their monthly financial statements.
• She is a certified public accountant who owns her own accounting firm, where she serves small businesses, nonprofits, solopreneurs, freelancers, and individuals.
• You can do a bank reconciliation when you receive your statement at the end of the month or using your online banking data.

Conversely, when your company makes a purchase, the cash used would then be recorded as a credit in the cash account and a debit in the asset account. This will allow you to see all of your transactions within 24 hours of making them, so you can detect mistakes and errors quickly, and you’ll have a consistent idea of your current balance. This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task. For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items. Whether this is a smart decision depends on the volume of transactions and your level of patience.

Reconciling accounts can be a tedious and time-consuming process. That’s why many organizations turn to accounting software to handle this so they can instead focus on more strategic priorities. This is one of the reasons it’s a good idea to balance your checkbook more often than once a month, especially if you are newly adopting this financial task. You will have fewer transactions to comb through if you balance once a week or once every two weeks. As you continue to make transactions, record them in your check register so you have a running tally of your debits, credits and total balance.

• However, they can lull some people into believing that they are staying on top of their money chores because the aggregator does so much for you.
• To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available.
• Many companies have systems for maintaining payment receipts, account statements, and other data necessary to document and support account reconciliations.
• If the bank shows money deposits not reflected in your internal books, make the entries.
• According to the survey, up to 59% of financial department resources can be spent on managing transactions.
• If you’ve done everything right, your accounting records should match the bank’s records when it comes to how much cash you have in your accounts.

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. The easiest way to find these adjustments when completing a bank reconciliation is to look at the bank fees.