A Guide to Everything You Need to Know About Bank Reconciliations

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.

With our advanced cash application tools, we use optical character recognition (OCR) and AI to automate matching for payments outside the platform too. These discrepancies happen when human error (like incorrectly keyed information) causes there to be differences between the general ledger and the subledgers. For a more detailed and thorough illustration of a bank reconciliation and to learn the related terminology, be sure to see our topic Bank Reconciliation. When you leave a comment on this article, please note that if approved, it will be publicly available and visible at the bottom of the article on this blog.

reasons why account reconciliation is necessary

This is done by comparing the company’s recorded amounts with the amounts shown on the bank statement. When there are no unexplained differences, accountants state that the bank statement has been reconciled. In most business settings, the task of conducting bank reconciliations typically falls on the shoulders of the accounting department. These financial sleuths accept the essential responsibility of matching transactions recorded in the company’s general ledger with the bank statements. After finding evidence for all differences between the bank statement and the cash book, the balances in both records should be equal. You should prepare a bank reconciliation statement that explains the difference between the company’s internal records and the bank account.

This is any transaction where money is being deducted, is a negative transaction or is leaving your bank account. All amounts should sync up—if not, subtract any missing transactions and probe to get to the root of the discrepancy. Since both the company’s books and the bank statement have an adjusted balance of $6,975 the bank statement has been reconciled. For example, Company XYZ is an investment fund that acquires at least three to five start-up companies each year. For the current year, the company estimates that annual revenue will be $100 million, based on its historical account activity.

Bank Reconciliation Record Keeping

If there are still discrepancies after you’ve made the necessary adjustments, you might need to consider an audit to rule out fraud or hold the responsible parties accountable. In general, reconciling bank statements can help you identify any unusual transactions that might be caused by fraud or accounting errors. The analytics review approach can also reveal fraudulent activity or balance sheet errors. In this case, businesses estimate the amount that should be in the accounts based on previous account activity levels. As a result, the accounting industry has sought ways to automate a previously strenuous manual process.

This procedure ensures that the business’s internal records align with external data. As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records. If you’re missing transactions in your personal records, add them and deduct the amount from your balance. If you’re finding withdrawals what is account reconciliation in banking that aren’t listed on the bank statement, do some investigation. If it’s a missing check withdrawal, it’s possible that it hasn’t been cashed yet or wasn’t cashed by the statement deadline. After recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month.