HomeAccount PayableHow to Do Bank Reconciliation: Step-by-Step Guide

How to Do Bank Reconciliation: Step-by-Step Guide

In today’s fast-paced business environment, the accuracy and consistency of financial records are crucial for accountants, bookkeepers, auditors, and finance team members.

The bank reconciliation process is one essential practice that safeguards the integrity of these records. It ensures that bank statements match the company’s accounting records.

This article will provide a bank reconciliation example and delve into bank reconciliation best practices to efficiently and effectively perform this critical task.

Whether you are a seasoned professional or a newcomer in the world of finance, this comprehensive guide will serve as a valuable resource to help you navigate this process smoothly.

What Is a Bank Reconciliation?

Bank reconciliation is the process of comparing and matching the account balance reported by the bank with the general ledger of a business. This is done through a bank reconciliation statement, allowing businesses to identify and rectify discrepancies or potential errors.

Businesses maintain a cash book to record both bank transactions and cash transactions. The cash book is divided into two columns – the cash column, which shows the available cash, and the bank column, which displays the cash at the bank.

By diligently recording all transactions, businesses can keep track of their financial activities and ensure the accuracy of their records.

Banks also keep accounts for every customer, recording deposits on the credit side and withdrawals on the debit side. At regular intervals, usually monthly, banks send account statements to their customers. These statements provide a detailed summary of all the transactions during that period.

Steps to Do Bank Reconciliation

Bank reconciliation helps you verify business accounting numbers. Here are the steps to follow:

1. Obtain Bank Records

If you’d like to initiate the bank reconciliation process, the first step is to obtain your bank records. You can source these records from a variety of channels, like online banking portals, or directly from your accounting software if it integrates with your bank.

In case your business operates with multiple accounts such as checking and credit card accounts, make sure to gather statements for each account separately. After obtaining the necessary records, review each statement thoroughly.

Pay attention to itemized cash and other deposits made into your checking account. This will help you avoid common mistakes made during the bank reconciliation process.

2. Compile Business Records

Begin by opening your ledger, which records your business’s income and outgoings. The ledger may be in various formats, such as a logbook, spreadsheet, or within an accounting software package.

If you use automation software integrated into your accounting system, such as Peakflo, take advantage of automation features to streamline your record-keeping process. This technology automatically imports bills and receipts, organizes data, and saves time while reducing errors, helping to maintain accurate financial records.

Peakflo reconciliation

3. Adjust Your Bank Statements

The process of adjusting your bank statements involves:

  • Account for missing deposits: Ensure that each deposit appearing on your bank statement is accurately recorded as income in your accounts. If you find any missing deposits, enter them and identify whether they resulted from a sale, interest, a refund, or another source.
  • Deduct outstanding checks: Outstanding checks are checks that have been written and recorded in the business’s cash account but have not yet cleared the bank account. These often occur when checks are written near the end of the month.
  • Solve bank errors: Identify and correct any mistakes made by the bank when preparing the bank statement. Adjust your records accordingly to ensure your financial data is accurate.

4. Adjust the Cash Balance

There are a couple of steps to adjust your cash balance:

  • Verify receipts: Review your bank statement to identify any missing transactions, such as payments received but not recorded in your ledger. Ensure that each deposit (from sales, interest, or refunds) is recorded separately, even if made on the same day, and enter any missing transactions.
  • Review payments: Examine the bank withdrawals recorded in your books, including bank fees and other charges.

    Account for discrepancies between your ledger and bank statement, such as overdraft fees, service charges, or payments made via cash or from another account. Deduct these from your ledger to ensure each entry matches a withdrawal in your bank statement.
  • Account for Bank Charges, NSF Checks, and Errors: Add interest or deposits received, correct calculation, typing, or omission errors, and deduct NSF checks. Also, account for un-presented and un-credited checks by adding and subtracting them, respectively.

5. Compare the Balances in the Ledger

After adjusting the bank statement and ledger, the amounts should match, signifying accurate financial records. If discrepancies exist, investigate if they stem from a different period by reviewing past reconciliation reports or financial records.

For small discrepancies, adjust balances and record differences in your books to maintain consistency and accuracy. When adjusted balances match, prepare journal entries for the reconciled balance, noting that outstanding checks are already in the ledger and don’t need recording.

The Easiest Way to Do Bank Reconciliation is to Automate It.

We all know how frustrating bank reconciliation is. Manual processes are always riddled with errors, such as double entries, data discrepancies, or unknown transactions.

Solving the mistake involves not just one, but four to five steps. Sorting through invoices, receipts, emails, and entries is frustrating as it is challenging.

Let Peakflo do the account transactions for you. Our AP software syncs the data from Peakflo to your accounting software, or the other way around, on a daily basis. You won’t need to worry about closing books at the month-end, it’ll be done before you realize it.

Reconcile seamlessly with Peakflo, starting from today.

Lulu, as a content marketer in Peakflo, is passionate about educating users on accounts payable and receivable management to help businesses maximize their cash flows. When not glued to the screen, she has her attention either on her annoying brother or five adorable cats.
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