7 Steps to Audit Bank Reconciliation Statements

In that case, both unadjusted balances will need adjustments to arrive at the true, corrected, adjusted cash balance. 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. If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the mail today, I promise! Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books . Since the adjusted balance for both the bank book and bank statement is $400, it means there are no extra items that need to be reconciled.

Finally, the balances are compared again, at which point, both should be equal. As apparent, there are differences between the two statements.

First, check your two cash balances

Match transactions from your bank statement and general ledger account. Each transaction in one document should have a corresponding transaction in the other. Check the final figures on your bank reconciliation document against your general ledger totals and ensure they match. Compare the final figures on your reconciliation document to that account’s bank statement. Payments are automatically reconciled with the expenses charged by the user – it is easy, simple, and automated.

Also, check for any miscellaneous deposits that haven’t been accounted for. Once you’ve located these items, you’ll need to adjust the G/L balance to reflect them. Common causes of discrepancies between bank statements and business records include outstanding checks, deposits in transit, interest income, and https://accounting-services.net/ bank service and overdraft fees. In the past, it was common for a company to prepare the bank reconciliation after receiving the monthly bank statement and before issuing the company’s balance sheets. However, with today’s online banking a company can prepare a bank reconciliation throughout the month .

Reasons for Difference Between Bank Statement and Company’s Accounting Record

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. When it comes to optimizing accounts payable management, reconciling your bank account is critical to staying on track. If you don’t ensure the business and bank are on the same page, tiny mistakes can snowball into huge problems.

This allows the company to verify its checking account balance more frequently and to make any necessary corrections much sooner. Every check amount on the bank statement must be compared to the check How to prepare bank account reconciliation amounts in the company’s general ledger Cash account. Any differences, such as the company’s outstanding checks and errors, will become part of the adjustments listed on the bank reconciliation.

Bank Reconciliation Process Flow

For example, you may have accepted checks on the closing date of the bank statement, or a check you recently wrote hasn’t been cleared. While accounting software apps that offer bank connectivity can expedite the reconciliation process, they should not replace performing your own monthly bank reconciliation. Many bank statements will separately summarize deposits and withdrawals as does the summary at the top of the QuickBooks reconciliation screen. First, try to match total bank deposits to total QuickBooks deposits by reviewing only deposit transactions. Then, match total withdrawals from QuickBooks and the bank statement. The deposits on your bank statement will likely have multiple checks grouped into a single transaction, particularly if you deposited the checks directly to your bank. When you make multiple deposits in one go, your bank will record them as a single deposit, which shows up in your bank statement.

It summarizes the beginning and ending balances, and it lists which transactions were cleared and which were left uncleared when you reconciled. This report is useful if you have trouble reconciling the following month. You have two options for recording your bank reconciliation. One is making a note in your cash book , and the other is to prepare a bank reconciliation statement .

Introduction to Bank Reconciliation

How you choose to perform a bank reconciliation depends on how you track your money. Some people rely on accounting software or mobile apps to track financial transactions and reconcile banking activity. Others use a paper checkbook, and balance it each month, to keep a record of any written checks and other transactions. You can also opt to use a simple notebook or spreadsheet for recording your transactions. The accounting records in-office should be used to adjust the bank statement. Using the cash balance shown on the statement, add back in any deposits “in transit”. These are amounts that are received and recorded by a business but not yet documented by the bank.

• By doing so, it may be easier to invest the residual funds, as well as to monitor the status of the investment.
• Bank reconciliation is a part of the internal controls of a company.
• These are categories of discrepancies that cause a difference in the balances between the balances in the bank book and bank statement.
• When the bank debits a depositor’s checking account, the depositor’s checking account balance and the bank’s liability to the customer/depositor are decreased.
• For example, if a business pays a cheque to a supplier but the supplier does not cash the cheque in the bank in that month.

If your difference is, for example, $21.50, then look for a transaction for this amount on either your bank statement or the QuickBooks list of transactions. You can click on the amount column in the QuickBooks reconciliation screen to sort the transaction by amount.