Bank Reconciliation: Purpose, Example, Process

Banks take time in clearing checks, so the bank needs to add back the check’s amount to the bank balance. Journal entries, also known as the original book of entries, refer to the process of recording transactions as debits and credits, and once these are recorded, the general ledger is prepared. As a result of these direct payments made by the bank on your behalf, the balance as per the passbook would be less than the balance as per the cash book. These debits made by the bank directly from your bank account will lead to a difference between balances.

1. At times, the balance as per the cash book and passbook may differ due to an error committed by either the bank or an error in the cash book of your company.
2. Now, simply compare the transactions on your statement with what’s in QuickBooks.
3. Preparing a bank reconciliation statement is done by taking into account all transactions that have occurred up until the date preceding the day the bank reconciliation statement is prepared.
4. Therefore, an overdraft balance is treated as a negative figure on the bank reconciliation statement.

When you have your bank statement in hand, you’ll compare each transaction with the ones entered into QuickBooks. We recommend reconciling your checking, savings, and credit card accounts every month. Connect QuickBooks to your bank, credit cards, PayPal, Square, and more1 and we’ll import your transactions for you. When you receive your bank statement or account statement at the end of the month, you’ll only spend a minute or two reconciling your accounts.

Compare both adjusted balances

Reconciling a bank statement is an important step to ensuring the accuracy of your financial data. To reconcile bank statements, carefully match transactions on the bank statement to the transactions in your accounting records. With QuickBooks, you can easily reconcile bank accounts to ensure that the dollars you record are consistent with the dollars reported by the bank. In the absence of proper bank reconciliation, the cash balances in your bank accounts could be much lower than expected, which may result in bounced checks or overdraft fees. It’s recommended to reconcile your checking, savings, and credit card accounts every social security and medicare 2020 month.

Review cleared transactions

QuickBooks organizes your data for you, making bank reconciliation easy. Using 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 will get updated automatically and each item will be matched with your books of accounts. As a result, the bank statement balance will be lower than the cash book balance, so the difference will need to be adjusted in your cash book before preparing the bank reconciliation statement.

Step 3: Compare your statement with QuickBooks

When you compare the balance of your cash book with the balance showcased by your bank passbook, there is often a difference. One of the primary reasons this happens is due to the time delay in recording the transactions of either payments or receipts. There are times when the bank may charge a fee for maintaining your account, which will typically be deducted automatically from your account. Therefore, when preparing a bank reconciliation statement you must account for any fees deducted from your account. Make sure that you’ve also taken into account all deposits and withdrawals to an account when preparing the bank reconciliation statement.

Learn from these 10 common accounting mistakes to make improvements in your business. Preparing a bank reconciliation statement is done by taking into account all transactions that have occurred up until the date preceding the day the bank reconciliation statement is prepared. To reconcile your bank statement with your cash book, you’ll need to ensure that the cash book is complete and make sure that the current month’s bank statement has also been obtained. At times, your business may either omit or record incorrect transactions for checks issued, checks deposited, or the wrong total, etc.

In addition to this, the reconciliation process also helps keep track the occurrence of fraud, which can help you control your business’ cash receipts and payments. If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible). If you suspect an error in your books, see some common bank reconciliation errors below. Since all of your transaction info comes directly from your bank, reconciling should be a breeze. This lets you write a check or enter a bill to pay to cover the outstanding balance.