At times, your customers may directly deposit funds into your business’ bank account, but your business will not notified about this the bank statement is received. Deposits in transit, or outstanding deposits, are not showcased in the bank statement on the reconciliation date. This is due to the time delay that occurs between the depositing of cash or a check and the crediting of it into your account.
If your company receives bank statements more frequently, for example, every week, you may also choose to do a bank reconciliation for every statement you receive. Once you complete the bank reconciliation statement at the end of the month, you need to print the bank reconciliation report and keep it in your monthly journal entries as a separate document. This document will make auditors aware of the reconciled information at a later date.
Adjusting the General Ledger Balance
Most reconciliation modules allow you to check off outstanding checks and deposits listed on the bank statement. Once you’ve identified all the items that align between the two records, it’s time to account for any discrepancies. These may include deposits in transit, outstanding checks, bank fees, or miscalculations by the bank or the internal accounting team. Regularly reconciling your bank statements helps businesses detect potential issues with their financial recording system, making it easier to rectify those problems quickly. This can range from one-off errors such as calculation mistakes or double payments to major concerns like theft and fraud.
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- So it makes sense to record these items in the cash book first in order to determine the adjusted balance of the cash book.
- The bank reconciliation statement explains the difference between the balance in the company’s records and the balance in the bank’s records.
- Failing to review these reports regularly can lead to errors in the reconciliation process.
This relatively straightforward and quick process provides a clear picture of your financial health. Consider reconciling your bank account monthly, whether you set aside a specific day each month or do it as your statements arrive. How you choose to perform a bank reconciliation depends on how you track your money.
Bank Reconciliations: Everything You Need to Know
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. Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them.
You will know about this only when you receive the bank statement at the end of the month. As a result, your balance as per the passbook would be less than the balance as per the cash book. In this instance, your bank the difference between margin and markup has recorded the receipts in your business account at the bank, while you haven’t recorded this transaction in your cash book.
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. After including all the amounts identified in Step 3, your statements should display the same final balance. If any discrepancies cannot be identified and reconciled, it may signal an error or risk of fraud which your company can investigate further. When your balance as per the cash book does not match with your balance as per the passbook, there are certain adjustments that you have to make in order to balance the two accounts.
It shows what transactions have cleared on your statement with the corresponding transaction listed in your journal. Additionally, bank reconciliation statements brings into focus errors and irregularities while dealing with the cash. By avoiding these common errors, you can ensure the accuracy of your organization’s financial records, make informed business decisions, and reduce the risk of financial issues.
