Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them. The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. When they draw money from your account to pay for a business expense, they could take more than they record on the books. Next, we look at how a bank uses debit and credit when referring to a company’s checking account transactions. Next, check to see if all of the deposits listed in your records are present on your bank statement.

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. 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.

However, sometimes there are differences between the two balances and so you’ll need to identify the underlying reasons for such differences. All of direct costs and indirect costs: complete guide + examples this can be done by using online accounting software like QuickBooks, but if you are not using accounting software, you can use Excel to record these items. After adjusting all the above items what you’ll get is the adjusted balance of the cash book.

1. More specifically, you’re looking to see if the “ending balance” of these two accounts are the same over a particular period (say, for the month of February).
2. (f) The cash book does not contain a record of bank charges, $70, raised on 31 May.
3. Once you’ve identified all the items that align between the two records, it’s time to account for any discrepancies.

Comparing Accounting: Bank vs. Company

One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts. Or you could have written a NSF check (not sufficient funds) and recorded the amount normally in your books, without realizing there wasn’t insufficient balance and the check bounced. When you do a bank reconciliation, you first find the bank transactions that are responsible for your books and your bank account being out of sync. Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly. When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy.

Adjusting Discrepancies Between Books and Bank

If the charges are not from your bank, the bank can also help you identify the source so that you can prevent any fraud or theft risk. Keeping on top of your bank reconciliation ensures that you’re always aware of your company’s financial situation. This helps you anticipate any cash flow challenges so you can respond appropriately. Financial accuracy is also important for ensuring that all payments have been fulfilled and orders have been completed. Go through both statements and highlight any transactions that appear on only one side.

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Therefore, a check dated June 29 will be recorded in the company’s accounts using the date of June 29, even if the check clears (is paid through) the company’s bank account one week later. There could be transactions unaccounted for in your personal financial records because of what is fringe in accounting a bank adjustment. This may occur if you were subject to any fees, like a monthly maintenance fee or overdraft fee. For interest-bearing accounts, a bank adjustment could be the amount of interest you earned over the statement period. Discrepancies in bank reconciliations can arise from data processing errors or delays and unclear fees at the bank.

Who are the parties involved in a bank reconciliation statement?

Consider performing this monthly task shortly after your bank statement arrives so you can manage any errors or improper transactions as quickly as possible. Keeping accurate records of your bank transactions can help you determine your financial health and avoid costly fees. Using this simple process each month will help you uncover any differences between your records and what shows up on your bank statement.

As a result, it is critical for you to reconcile your bank account within a few days of receiving your bank statement. A bank reconciliation is an essential process for ensuring that your company’s financial statements match the available cash in your business bank account. Performing regular bank reconciliations helps you stay on top of cash flow, keep organized records for tax season, and minimize the risk of fraud and theft. 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. A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement.