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what is bank reconciliation

There are times when the bank may have charged you for something, like bank fees or service charge, and you may not have added them to the ledger. Efore you sit down to reconcile your books, make sure your bank records and book of accounts are updated.

As a result, the balance as per the bank statement is lower than the balance as per the cash book. Such a difference needs to be adjusted in your cash book before preparing the bank reconciliation statement.

Problems with Bank Reconciliations

Deposits in transit are also referred to as outstanding deposits. Such deposits are not showcased in the bank statement on the reconciliation date. This happens due to the time lag between when your business deposits cash or a cheque into its bank account and when your bank credits the same.

  • In case there are any differences, due to outstanding cheques or any other errors, specify the differences in your company’s bank reconciliation statement.
  • The bank may send you a bank statement at the end of each month, every week, or even at the end of each day in case of businesses having a huge number of transactions.
  • There are times when your business entity deposits a cheque or draws a bill of exchange discounted with the bank.
  • To do this, a reconciliation statement known as the bank reconciliation statement is prepared.
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  • More commonly, bank reconciliation is conducted at the end of the week or month.

With accounting software like Zoho Books, doing abank reconciliationis even easier with quick and direct access to your bank statement and records, along with an easy reviewing and what is bank reconciliation matching process. A bank reconciliation statement is a document that itemizes adjustments to a company’s bank balance and its accounting books so that the two numbers match.

Cheques Paid into the Bank But Not Yet Collected or Credited

Non-sufficient funds checks are recorded as an adjusted book balance line item on the bank reconciliation statement, with the NSF amount deducted from its balance. A check payment that has been recorded by the issuing entity, but which has not yet cleared its bank account as a deduction from cash. If it has not yet cleared the bank by the end of the month, it does not appear on the month-end bank statement, and so is a reconciling item in the month-end bank reconciliation. Outstanding cheques refer to Cheque payments that have been recorded in the books of accounts of the issuing company but have not been cleared by the bank yet. In addition to this, the interest or dividends earned on investments is directly deposited into your bank account after a specific period of time. Therefore, you need to pass a journal entry in your books of accounts showcasing the increase in cash balance due to the interest or dividend earned. An outstanding cheque refers to a cheque payment that has been recorded in the books of accounts of the issuing company.

  • First compare the transactions in your books to the bank statement.
  • If this occurs at month-end, the deposit will not appear in the bank statement, and so becomes a reconciling item in the bank reconciliation.
  • If it’s only a small difference, adjust it and record the difference in your books.
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  • Bank reconciliation statements ensure that payments have been processed and cash collections have been deposited into the bank.

Committing transposition errors while recording figures in the books of accounts. For example, instead of recording $151,000, you record $115,000. Bank reconciliation is undertaken in order to ensure that your balance as per the bank statement is correct. From the following particulars of Zen Enterprises, prepare a bank reconciliation statement as of December 31, 2021. Such information is not available to your business immediately. Therefore, you record no entry in the business’ cash book for the above items. There are times when your business entity deposits a cheque or draws a bill of exchange discounted with the bank.

Make Necessary Adjustments in the Balance as per cash book

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