How do I do bank reconciliation

A bank reconciliation statement could basically be considered a document that compares the cash balance records on a company’s balance sheet to the corresponding amount on its bank statement records.

A bank statement is a list of all the cash receipts and withdrawals that a business has made over a period of time. Cashbook contains all the receipts of bank deposits and withdrawals. The bank produces a bank statement and a business maintains a cash book.

The purpose of it is to identify every single one error which leads to the mismatch of bank statement and the cash book maintained by the business. It is important if you want to ensure that your books are up to date and give an accurate picture of the business. That said, lets now move on to the question “ How to do I do bank reconciliation?”

Here are the simple 7 steps that one can be followed for doing a bank reconciliation:

Step 1: The first step starts with a collection of bank records and the business record. Fetch the copies of the bank statement and cash book from the general Ledger for the period you need to reconcile. The bank statement will have all the amounts that are debited and are created to one’s bank account including the opening and closing balances.

Step 2:Bank reconciliation template which is a spreadsheet has to be set up. The reconciliation starts with the unadjusted closing balances from each report. This will be our starting point keeping in mind to calculate the adjusted closing balances from each side i.e. from the bank statement column and the cash book column. It’s always good to write down the unreconciled amount at the end of the page.

Step 3: Markdown att the transaction that is matching in the bank statements and cash book. The aim here is to not include them at the time of bank reconciliation.

Step 4: In the fourth step the adjusted bank statement balance is calculated, the number of outstanding cheques that haven’t be cashed in yet from the customer is also calculated. They will appear as a credit or reduction to cash in cash book because the payment has been recognized in General Ledger but there is no sign of them in the bank statement because they haven’t been cashed in yet. In this step, we will also consider the errors done by the bank such as timing difference, etc.

Step 5: Calculation of adjusted cash book balance in which the things like omissions or transaction which haven’t been recorded in the cash book and is already found in bank statement are taken care of. Interest received, printing fee, not sufficient fund fees, and the bank charges are also noted down from the bank statement. After everything is marked down the next step will be deducting all these from the cash book.

Step 6: To finish bank reconciliation, it is important that the adjusted bank balance matches the adjusted cash book balance exactly. In the case of something is missing, discover why. A client installment may have bounced, for instance.

Step 7: Preparation of necessary general entries so as to post them to the correct cash balance of the given period. It is always advisable to recheck all the transactions before making the final journal. If we don’t maintain a journal then all of these cash book adjustments will appear again next time when we do the bank reconciliation. The general entry will contain the date, account, debit, and credit columns including the reason for the mismatch match such as interest received or the bank service charge.

There may be times when some transactions in your cash book will not make any sense, don’t panic at such times, check the bank statements, and contact your bank for the clarification or help. It might have happened that you forgot to enter that transaction. It is always a good idea to complete the bank reconciliation on a weekly bases or even on a daily basis again depending on the time to complete reconciliation and the size of the business so as to avoid the burden of reconciling at the month-end.