According to Wikipedia, bank reconciliation is the process by which the bank account balance in an entity’s books of account is reconciled to the balance reported by a company in the most recent bank statement.
The purpose of bank reconciliation is to resolve any discrepancies between the bank statement and your company’s financial report and identify any fraudulent transactions. So, what is the best way to do bank reconciliation? Here’s the step-by-step guide:
Bank reconciliation steps
Typically, you receive the bank statement by the end of the month, and usually, there are some discrepancies between the bank statement and your company statement. Here’s the bank reconciliation step-by-step guide:
Compare the deposits
You don’t have to panic if there are some discrepancies between the bank statement and your company statement. There are several reasons for these differences; deposits in transit, outstanding checks, and bank errors.
Deposits in transit are the recorded transaction on the company statement, but you can’t find it on the bank statement. To settle it, you need to at the record to the bank statement.
The second reason is you have outstanding checks. It deduced balance on the company statement but not at the bank statement. It usually happens because the note was written on the last day of the month. To correct the wrong, you need to deduct the balance on the bank statement according to the amount of the outstanding checks.
The last one is bank errors. It’s quite common for the bank to input the wrong amount of transaction or even omitted some on their bank statement. Compare the cash account’s general ledger to the bank statement to find the error.
Adjust the cash account
The next step is to adjust the cash account balance in the company statement by adding interests, deducting monthly charges, and overdraft fees. To do this, you need to calculate bank charges, NSF checks, and bookkeeping errors.
The bank charges include; administrative fees, transfer fees, and withdrawals fees. If your company earned interest from the bank, you need to add that as well to the cash account.
NSF (not sufficient funds) check is the check that has not been honored by the bank due to insufficient funds in the entity’s bank account. It means that the check amount is yet to be added to your bank account. Therefore, you need to deduce it from your company statement.
Compare the balances
The next thing you need to do is compare the balance in the company statement and the bank statement. If the balance is still different, you have to redo all the process from the beginning. But if the balance is equal, then you can prepare the journal entry for the adjustments to the balance.
How often you need to do bank reconciliation?
Ideally, you need to reconcile your bank account every time you receive the bank statement. So, if you receive it on the last day of the month, you need to do this task at least once a month.
But, if the number of transactions recorded reaches thousands every month, this task will take a lot of time to complete. Therefore, a lot of companies try to implement accounting software to automate this task.
ClickWork is already equipped with various features that companies need to automate business processes, such as purchasing, sales, inventory, collaboration, and accounting. The ClickWork can help you do bank reconciliation quickly and painlessly. Try ClickWork for free now by clicking on the following button.