In bookkeeping, bank reconciliation is a common cash procedure. It’s a process in which you ascertain whether the balances for a cash account in your business accounts records match the information on a bank statement. 

What is the Purpose of a Bank Reconciliation? 

Reconciling your business bank account includes comparing your internal financial records with the balance reported by your financial institution. The main purpose of a bank reconciliation is to find out if there are any errors, irregularities, and adjustments for the Cash account. This means any difference between the two figures will need to be examined and rectified, as appropriate.

Before the reconciliation process, it’s important to have all transactions up to the end of your bank statement on-hand. If you use online banking services, download the bank statements for the regular reconciliation process. Otherwise, you may have to manually enter the information.

You only need to reconcile bank statements if you use the accrual method of accounting. If, however, you use cash basis accounting and record every transaction at the same time the bank does there should be no discrepancy between your books and your bank statement.

Processing A Bank Reconciliation

Ideally, you should reconcile your bank account each time you receive a statement from your bank. This is often done at the end of every month, weekly and even at the end of each day by businesses that have a large number of transactions.

Since this process involves bank statements, many people mistakenly believe that this is a procedure that can be carried out by their bank. Banks, however, do not prepare bank reconciliations for businesses. 

Like with other financial tasks, this can be prepared internally. However, having an independent person prepare the reconciliation helps establish separation of duties and deters fraud by requiring collusion for unauthorized actions. A bank reconciliation is therefore a recommended task for your company’s financial assistant, such as a bookkeeper.

There are many different formats for the reconciliation process, but they all accomplish the same objective. In bookkeeping, the reconciliation process typically includes:

Step-By-Step Guide

Look at the beginning balance in the account to the ending reconciliation detail from the prior period to see if they match. If there’s a discrepancy, find out what’s the reason for the variance in the prior period. If the account has not been reconciled for some time, it is possible that the error lies is further in the past.

Go ahead and compare the transactions reported in the account within the period to the underlying transactions, and adjust as needed.

Review all adjusting journal entries recorded in the account within the period for appropriateness, and adjust as necessary.

Reversals review. Ensure that all journal entries that should have reversed within the period have been reversed.

Ending balance review. Verify that the ending detail for the account matches the ending account balance.

The concept of reconciling the general ledger can also refer to examining the general ledger as a whole to ensure that all accounts are being aggregated into the financial statements. This reconciliation process involves the following steps:

Summarize the ending balances in all revenue accounts and verify that the aggregate amount matches the revenue total in the income statement.

Summarize the ending balances in all expense accounts and verify that the aggregate amount matches the expense total in the income statement. This can be conducted at the individual expense line item level in the income statement.

Summarize all asset, liability, and equity accounts and verify that the aggregate amounts match the respective line items in the balance sheet.

The process can seem simple but it can be very complex for a business owner without the experience. If your books are in shambles, or you use more than one bank, DIY bookkeeping for your business can be tedious and stressful. Leave it to the experts!

If you need assistance from a professional online bookkeeper to reconcilr your bank statements, don’t hesitate to contact us!