Bank Reconciliation Statement: How To Prepare It?

Bank Reconciliation Statement: How To Prepare It?

To do a bank reconciliation, first, you will need to match the cash balances on your balance sheet to the related amount on your bank statement. Apart from that, you will also need to evaluate the difference between the two so as to make changes to our accounting records, find discrepancies, and find fraudulent transactions, if any. With this technique, you are comparing the account balance your bank reported to your general ledger.

In this article, you will learn about bank reconciliation and what a bank reconciliation statement is. Next up, we will discuss why this process is important and how this technique works. Then, we will share with you some of the steps with the help of which you will be able to do this reconciliation action easily. Hence, to learn more about this accounting technique, read on through to the end of the article.


What Is A Bank Reconciliation Statement?  

According to Investopedia,

A company prepares a bank reconciliation statement to compare the balance in its accounting records with its bank account balance. The statement shows reasons for any discrepancies between the two. A bank reconciliation statement is a valuable internal tool that can affect tax and financial reporting and detect errors and intentional fraud.

In recent times, accounting software systems have become really popular with small businesses. It is still important for companies to regularly compare their personal records of transactions with bank statements. This process ensures that the business records are correct and also helps to spot any discrepancies, fraudulent charges, or even errors.

Bank reconciliation is a process in which a company compares its accounting books with its bank statements. This ensures that every transaction is properly done. It is also important to do reconciliation on a regular basis.

Although many companies keep their records manually, the process becomes simple and efficient with the help of a bookkeeping software system. With the help of these software programs, the business integrates its bank accounts and provides all its data and records in one place.

Why Do Bank Reconciliation At All? recommends –

Ideally, you should reconcile your bank account each time you receive a statement from your bank. This is often done at the end of every month, weekly, and even at the end of each day by businesses that have a large number of transactions. Before the reconciliation process, businesses should ensure that they have recorded all transactions up to the end of their bank statement.

There are several advantages of doing a bank reconciliation. Some of the major ones are given below:

  1. It gets easier to detect errors in transactions like double payments, calculation errors, missed payments, and many more cases.
  2. You will be able to track and add your bank fees and penalties to the book.
  3. You will also be able to stop theft and fraudulent transactions from your bank.
  4. The processes allow you to keep track of your accounts payable and receivable related to your business.

How Does The Process Work?  

According to,

The process is a helpful way to keep accurate records, guard against fraudulent charges and resolve any other discrepancies or issues. Most companies perform bank reconciliation, or bank rec, at the end of every month, however, the frequency is largely dependent on the size of the company and the number of transactions that occur. For instance, some larger companies find it necessary to reconcile their records every day.

Basically, with the help of bank reconciliation, you will be able to compare two different records. The reconciliation statement will thus help you to identify the differences in balances in your company’s account and its book.

With bank reconciliation, the statement includes deposits, withdrawals, as well as other activities that affect the account for a specific period of time. If there are any discrepancies available, it is possible to make corrections and necessary adjustments.

Steps To Follow To Perform Bank Reconciliation  

If you want to create a bank reconciliation, you will need to gather your bank statements for the current month as well as previous months. On the other hand, your company’s ledger is also important to compare the data. You can compare the values of both statements (bank statements and company ledger) using a spreadsheet or with the use of an online bank reconciliation template.

Here are the steps you will need to follow to do bank reconciliation:

Step 1: Gather a copy of your company’s accounting statements and your bank statements. Both should consist of data on deposits, payments, and cash amount balances.

Step 2: You will need to start using the closing balance for the previous month.

Step 3: You will also need to consider checks, transfers, bank fees, and all those statements that leave the bank account. Compare them with your company’s ledger, and ensure they all match.

Step 4: Review the bank transaction items like transfers, deposits, interests, as well as bank adjustments. Make sure the transactions are found inside your company’s ledger or account system. If you cannot find a transaction in either of the statements, you will need to record the missing item.

Step 5: After you have completed the bank reconciliation process (after you have made all the adjustments), you will need to make sure that the balance in the bank statement is equal to the balance in the accounting record.

Step 6: Even after the reconciliation process, if you find discrepancies, you will need to investigate more and check what errors you might have made or even in the bank statement.

Final Thoughts  

The process of bank reconciliation is a way through which you can ensure that your business records are correct and you do not have any discrepancies, errors, or frauds. The bank reconciliation statement here compares the account balance of the bank with its internal financial records. The statements confirm that the payments are well processed and collected.

A bank reconciliation statement basically helps to find fraud or accidental discrepancies so as to prevent them. After all adjustments, the balance on the statement must be equal to the bank’s ending balance. Do you have any more information to add regarding this term? Share your thoughts and ideas with us in the comments section below.

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