What is a Bank Reconciliation statement
Definition of a Bank reconciliation
A Bank reconciliation is where you balance the business accounts in the accounting system to the actual bank account. There should be no differences between the bank statement balance (cash account record) and the accounting record in the accounting software. If there is a difference, then there is potentially a transaction understated, overstated or not stated at all.
There are a couple of reasons why the accounting software system might not match the bank:
- Deposits in transit
- Payments in process
- Human error ie deletion or many entries
- Bank service fees
- Bank errors
A Bank reconciliation identifies these issues and helps the business owner know how much money is available.
Frequently asked questions
Why do we need bank reconciliation
The purpose of bank reconciliation is to find and fix errors. The process helps identify bookkeeping mistakes and alerts you to clean them up.
It also highlights areas where there is potential incorrect payments and / or fraud. Reviewing the expenses is a good way to spot errors or suspicious activity.
How often do you conduct bank reconciliation
In general, businesses should do bank reconciliations at least once a month. Banks send monthly statements at the end of the month. This is used for reconciliation, which usually happens after the month ends.
What happens if bank reconciliation doesn't balance
For unreconciled transactions, it may be necessary to revisit each step of the reconciliation process. A company may have to pull data again and compare each transaction. A business can manually fix a transaction (or multiple transactions) if their systems allow it.
How long does a bank reconciliation take
It varies based on transactions, but usually, you can reconcile within 30 minutes. Regular bank reconciliations can ensure that financial records and bank transactions in the company bank account are always up to date.
What should you do if you Cannot reconcile your account
Check the Opening Balance per your Records is the same as the reconciled balance from the month before. Check that the Bank Statement Closing Balance is the end of the month balance according to your Bank Statement in the accounting system.
What is bank reconciliation with example
Bank reconciliation is comparing your company's bank statements to your records to make sure all transactions are included. A good bank reconciliation process finds mistakes in your company's records and stops fraud and theft from your bank account.
What should you look for on the Bank Reconciliation Statement
Is the date of the closing balance on the bank statement the same as the closing balance date in the cashbook? For example, if the bank statement is dated 29 March and the cashbook date is 31 March, the bank reconciliation will not be comparing like with like.
- Check the cashbook balance
Does the stated cashbook closing balance actually agree to the cashbook? The cash balance shown in the cash book should always agree with the bank account balance.
- Check the bank statement balance
Does the stated bank statement closing balance actually agree to the bank statement?
- Check the structure of the reconciliation statement
Does the reconciliation statement show the discrepancies between the bank statement and cashbook balances at the end of the month? The figures must add up correctly.
- Check the outstanding items listed on the reconciliation statement
Does each of the outstanding items seem to be reasonable? These will include un-cleared cash deposits, bank interest or charges, and direct debits or bank transfers.
You should check out anything that is very old, very large, or peculiar.
Ensure that any missing items, such as bank charges and deposits, have been properly recorded in the cashbook. This should be done if these items are found on the bank statement.
- Check some cashbook entries
Occasionally, it's wise to review certain cashbook entries (like big or strange purchases and cash received) to make sure they're accurate.
For example, examine the cash paying-in book to determine the duration between receiving the cash and the actual banking date. Cash should be deposited in the bank within 3 to 5 days for cashflow and security purposes. If it regularly takes 3 to 4 weeks, the money could be being ‘borrowed’ or put at risk of theft.
- Check for ‘transposed’ numbers with the number 9
Sometimes the reconciliation statement will show an unexplained difference. In such cases, divide the difference figure by 9 (or add up the digits and see if it comes to 9). If the numbers divide evenly, it is possible that the difference is caused by a transposed number. A transposed number occurs when two numbers are reversed during entry.
For example, entering R2,166 incorrectly as R2,616 would result in an unexplained difference of R450. We can see that 450 is divisible by 9 because 4 + 5 + 0 = 9.
- Ensure you record that you worked on the bank reconciliation
The person performing the bank reconciliation should sign the report and the person reviewing the record should also note they have reviewed the reports. This assists auditors when and if these reports are audited. Make sure you do all the outstanding checks and close off your process with proper reports.
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