Bank reconciliation statement: Examples and formula

Kevin Payne is a personal finance and travel writer who covers credit cards, banking, and other personal finance topics. In addition to Forbes, his work has been featured by Bankrate, Fox Business, Slick Deals, and more. He is the budgeting and family travel enthusiast behind Family Money Adventure. Therefore, you need to deduct the amount of these cheques from your bank balance. However, in practice there exist differences between the two balances and we need to identify the underlying reasons for such differences. You will know about such information only when you receive the bank statement at the end of the month.

  1. Regardless of how you do it, reconciling your bank account can be a priceless tool in your personal finance arsenal.
  2. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
  3. The first step is to get the monthly statement from the bank and compare it to the cash balance in the accounting records.
  4. On 1st June 2023, she noticed a discrepancy of $50 between the company’s cash book and the bank’s passbook.

One of the primary reasons responsible for such a difference is the time gap in recording the transactions of either payments or receipts. Positions reconciliation is the process of comparing the positions in two or more portfolios to ensure that they are identical. This is often done by investment managers to ensure that their portfolios are in line with their investment objectives.

What Is the Purpose of Bank Reconciliation?

From your starting point, make a quick run-through of your bank deposits and cash book incomes. Check if each transaction on your bank deposits turns up the same on your company’s cash book. If there are any missing links, you have to find out what caused them immediately. Powered by AI/ML, bank reconciliation software make anomaly detection, variance analysis, and financial close task management easier for analysts. HighRadius’ Account Reconciliation Software accelerates the reconciliation process to achieve up to 90% of auto-certification of accounts every month. That means your account could quickly become overdrawn, with penalties and fees adding up in a matter of days.

This occurs when a transaction is recorded in one account but not the other. For example, imagine that a company pays its employees on the last day of every month. The company’s internal register would show the payment being made on the last day of the month, but the bank account would not show the funds being withdrawn until the following day. The reconciliation process is required in accounting because it assures the integrity and accuracy of financial statements. If there are discrepancies between the two sets of records, it may be an indication that there are errors in the accounting records. The process of conducting account reconciliation involves first comparing the two sets of records, then identifying any differences, and finally rectifying those differences.

Step 1: Find the starting balance

An example of a timing difference would be if a company received a deposit on Jan 30th and had a bank statement issued on Jan 28th and a financial statement issued on Jan 31st. The deposit would appear on the company financial statement but not on the bank statement. It is important to regularly conduct reconciliations to prevent any fraudulent activity or accounting errors that may be occurring. There are several possible reasons why reconciliation discrepancies may occur including timing differences, mistakes, missing transactions, or fraud.

The main purpose of reconciliation is to ensure the integrity of financial statements and detect any discrepancies or errors. Another benefit of reconciliation is that it can help prevent or uncover cases of fraud, embezzlement, or other types of unethical behavior. Regular reconciliations are an important part of good accounting practices and should be conducted regularly in order to maintain the accuracy and integrity of financial records. Once you have all the necessary documents ready, begin identifying your starting point so you can start with the reconciliation.

Download the Free Bank Reconciliation Statement Template

The statements give companies clear pictures of their cash flows, which can help with organizational planning and making critical business decisions. In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side. The bank sends the account statement to its customers every month or at regular intervals. Finally, when all such adjustments are made to the books of accounts, the balance as per the cash book must match that of the passbook.

However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors. Such cheques are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment. However, there might be a situation where the receiving entity may not present the cheques issued by your business to the bank for immediate payment. Not Sufficient Funds (NSF) refers to a situation when your bank does not honour your cheque.

It’s not uncommon for companies to pay a supplier twice for the same invoice, especially when it’s a recurring amount. 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.

This can lead to problems such as overstating or understating income, which can impact tax liability and other financial decisions. 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. A bank reconciliation statement is a document prepared by a company that shows its recorded bank account balance matches the balance the bank lists. This statement includes all transactions, such as deposits and withdrawals, from a given timeframe. To further optimise your accounting process and, therefore, your cash flow, it’s worth leveraging accounts receivable software like that offered by Chaser.

A bank reconciliation statement can help you identify differences between your company’s bank and book balances. As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records. If you’re missing transactions in your personal records, add them and deduct the amount from your balance. If you’re finding withdrawals that aren’t listed on the bank statement, do some investigation.

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. Cloud accounting software like Quickbooks makes preparing a reconciliation statement easy. Because your bank account gets integrated with your online accounting software, all your bank transactions get updated automatically.

There are times when your business entity deposits a cheque or draws a bill of exchange discounted with the bank. However, such deposited cheques or discounted bills of exchange drawn by your business entity get dishonored on the date of maturity. Your bank may collect interest and dividends on your behalf and credit such an amount to your bank account. It is important to note that it takes a few days for the bank to clear the cheques.

Ideally, the balance in your books is the same as the closing bank balance. The reconciliation statement allows the accountant to catch these errors each month. The company can now take steps to rectify the mistakes and balance its statements. The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account. Contact your bank to investigate further and find where the issue lies.

But, you will record such transactions only in your business’ cash book only when you receive the bank statement. Until then, your balance as per the tax deductions for your photography cash book would differ from the balance as per the passbook. Such deposits are not showcased in the bank statement on the reconciliation date.

If done regularly, a bank reconciliation easily helps you identify discrepancies so that you can adjust them. Company XYZ has an opening balance of $100,000 in its book and bank statements for the beginning of September 2022. After you’ve received bank statements, establish the last reconciled transaction from the previous period and begin there. Doing a bank reconciliation is fairly simple, but you need to be diligent in your efforts and avoid skipping steps to ensure the right checks and balances. Next, check to see if all of the deposits listed in your records are present on your bank statement.

This is done by taking into account all the transactions that have occurred until the date preceding the day on which the bank reconciliation statement is prepared. After adjusting all the above items, what you get is the adjusted balance as per the cash book. Another example would be a discrepancy between a business’s bank statement and its financial statement. For example, a business’ bank statement was issued on Jan 28th and the financial statements were issued on Jan 31st. A deposit made on Jan 30th would show on the company financial statements but not on the bank statement.


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