Strengthen Control with Bank Reconciliation

Why do we do bank reconciliations?

In the absence of regular bank reconciliations, businesses can end up with bounced checks and failed electronic payments in the short term and even become financially overstretched in a long time. All these outcomes affect cash flow, which can hurt the sustainability and future growth of the business. After recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month.

We’ll go over each step of the bank reconciliation process in more detail, but first—are your books up to date? If you’ve fallen behind on your bookkeeping, use our catch up bookkeeping guide to get back on track (or hire us to do your catch up bookkeeping for you). If you prefer to manage your reconciliations offline or your business operates in an area with limited connectivity, Sage 50 Accounting is a great choice. We particularly recommend it for businesses that need simple automated workflows, such as those that are focused on bank and credit card reconciliations on a daily or weekly basis. If you’re looking for an easier solution than sitting down each month to manually match each payment in your bank statement to the corresponding invoices and expenses, it exists.

Bank Statement Reconciliation FAQs

A bank reconciliation is matching information regarding cash accounts from accounting records to the corresponding information on bank statements. Simply put, a reconciliation is how a business makes sure it has the cash it thinks it has. The first step in bank reconciliation is to compare your business’s record of transactions and balances to your monthly bank statement. Make sure that you verify every transaction individually; if the amounts do not exactly match, those differences will need further investigation. 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.

Why do we do bank reconciliations?

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. 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. To reconcile your bank statement with your cash book, you need to ensure that the cash book is complete. bank reconciliation Further, make sure that the bank’s statement for the current month has also been obtained from the bank. Thus, such debits made by the bank directly from your bank account lead to a difference between the balance as per cash book and the balance as per the passbook. However, there may be a situation where the bank credits your business account only when the cheques are actually realised.

Timing Differences in Recording of Transactions

As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account. At times, you might give standing instructions to your bank to make some payments regularly on specific days to the third parties. For instance, insurance premiums, telephone bills, rent, sales taxes, etc are directly paid by your bank on your behalf and debited to your account.

Why do we do bank reconciliations?

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