Keeping your business finances in order can be a headache, especially when your bank statement and accounting records don’t match. This is where a Bank Reconciliation Statement becomes your best friend.
It’s a simple way to ensure your financial records are accurate and your cash flow is under control.
Whether you’re tracking down errors, managing outstanding deposits, or learning how to reconcile books in QuickBooks, this guide will walk you through everything step by step.
Let us simplify the process for you and show you how regular reconciliation can save your business from costly mistakes.
What is a Bank Reconciliation Statement?
A Bank Reconciliation Statement bridges the gap between your business’s cash book balance and the bank statement balance. Think of it as a health check for your financial records, making sure that every penny in your books aligns with what the bank shows.
For instance, if your cash book shows $10,000, but your bank statement says $9,800, you need to identify the $200 discrepancy.
This process helps you correct errors, account for pending transactions like outstanding checks or deposits in transit, and ensure the accuracy of your records.
Why is it Important to Reconcile Your Bank Statements?
Reconciling your bank statements regularly ensures your financial records are accurate and up to date. Missing this step might lead to overdraft fees or bounced checks. It also protects your business by helping detect fraud early.
Key Terms in Bank Reconciliation
These are some of the terms that you need to be familiar with before we look into a bank reconciliation should be prepared:
1. Bank Service Charge Banks often deduct fees for services like fund transfers or check clearing. These charges may reduce your bank balance without being reflected in your books. Adjusting these errors ensures accurate reconciliation.
Example: If your bank charges $15 for processing checks, you must subtract this amount from your book balance during reconciliation.
2. Outstanding Checks Let us define an outstanding check for you first. An outstanding check is a payment you issued that hasn’t been cashed or cleared by the bank. Let us suppose that if you pay a supplier by check on January 10, but the bank processes it on January 15, it remains “outstanding” until cleared.
3. Outstanding Deposits Also called deposits in transit, these are funds your business has recorded but the bank hasn’t yet processed. For example, a customer pays you on December 31, but the bank records it on January 2.
Bank Balance vs. Book Balance
Term
Definition
Example
Bank Balance
The balance shown on your bank statement. Also called “balance per bank.”
If your bank statement shows an ending balance of $5,000, that’s your bank balance.
Book Balance
The balance recorded in your accounting books or general ledger.
If your books show $5,200 because of an outstanding deposit, that’s your book balance.
Why They Differ:
Differences occur due to bank fees, unrecorded transactions, or timing issues like outstanding deposits and outstanding checks. For instance, if a
Keeping your business finances in order can be a headache, especially when your bank statement and accounting records don’t match. This is where a Bank Reconciliation Statement becomes your best friend.
It’s a simple way to ensure your financial records are accurate and your cash flow is under control.
Whether you’re tracking down errors, managing outstanding deposits, or learning how to reconcile books in QuickBooks, this guide will walk you through everything step by step.
Let us simplify the process for you and show you how regular reconciliation can save your business from costly mistakes.
What is a Bank Reconciliation Statement?
A Bank Reconciliation Statement bridges the gap between your business’s cash book balance and the bank statement balance. Think of it as a health check for your financial records, making sure that every penny in your books aligns with what the bank shows.
For instance, if your cash book shows $10,000, but your bank statement says $9,800, you need to identify the $200 discrepancy.
This process helps you correct errors, account for pending transactions like outstanding checks or deposits in transit, and ensure the accuracy of your records.
Why is it Important to Reconcile Your Bank Statements?
Reconciling your bank statements regularly ensures your financial records are accurate and up to date. Missing this step might lead to overdraft fees or bounced checks. It also protects your business by helping detect fraud early.
Key Terms in Bank Reconciliation
These are some of the terms that you need to be familiar with before we look into a bank reconciliation should be prepared:
1. Bank Service Charge Banks often deduct fees for services like fund transfers or check clearing. These charges may reduce your bank balance without being reflected in your books. Adjusting these errors ensures accurate reconciliation.
Example: If your bank charges $15 for processing checks, you must subtract this amount from your book balance during reconciliation.
2. Outstanding Checks Let us define an outstanding check for you first. An outstanding check is a payment you issued that hasn’t been cashed or cleared by the bank. Let us suppose that if you pay a supplier by check on January 10, but the bank processes it on January 15, it remains “outstanding” until cleared.
3. Outstanding Deposits Also called deposits in transit, these are funds your business has recorded but the bank hasn’t yet processed. For example, a customer pays you on December 31, but the bank records it on January 2.
Bank Balance vs. Book Balance
Term
Definition
Example
Bank Balance
The balance shown on your bank statement. Also called “balance per bank.”
If your bank statement shows an ending balance of $5,000, that’s your bank balance.
Book Balance
The balance recorded in your accounting books or general ledger.
If your books show $5,200 because of an outstanding deposit, that’s your book balance.
Why They Differ:
Differences occur due to bank fees, unrecorded transactions, or timing issues like outstanding deposits and outstanding checks. For instance, if a bank service charge is deducted on the last day of the month, it may not appear in your books immediately.
Steps to Prepare a Bank Reconciliation Statement Format
Here’s how to reconcile your bank statement like a pro.
Step 1: Gather Your Documents Start by collecting:
Bank statements
Cash book or accounting records
Notes on pending transactions, like outstanding checks or deposits in transit
Having everything in one place saves time and ensures accuracy.
Step 2: Compare Bank and Book Balances Check if the ending balance on your bank statement matches your cash book.
If they don’t, go through each transaction one by one. Highlight items like checks that haven’t cleared or deposits the bank hasn’t processed yet.
Step 3: Adjust for Bank-Only Transactions Your bank statement might show charges or credits that your books don’t. Examples include:
Service charges
Interest earned
Overdraft fees
Adjust your book balance by adding credits and subtracting debits.
Step 4: Adjust for Book-Only Transactions Now consider transactions in your books that the bank hasn’t recorded yet, such as:
Outstanding checks: Payments you’ve issued but haven’t cleared the bank
Deposits in transit: Money you’ve recorded as received but hasn’t shown up on the bank statement
Adjust the bank balance accordingly.
Step 5: Compare Adjusted Balances After all adjustments, the updated balances from both sides should match. If they don’t, double-check for errors like duplicate entries or missed transactions.
Step 6: Record Reconciliation Adjustments Finally, log any adjustments in your accounting system. This could include bank fees, NSF (non-sufficient funds) checks, or interest earned. Once done, your cash book and bank statement are reconciled!
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How To Prepare Bank Reconciliation Statement In Quickbooks
If you use software like QuickBooks, the process is even easier.
Step 1: Open QuickBooks and Start Reconciliation
Go to the Banking menu and select Reconcile.
Choose the account you’re reconciling and enter the statement’s ending balance.
Step 2: Match Transactions
Compare your bank statement to the transactions in QuickBooks.
Tick off the ones that match. QuickBooks helps automate much of this.
Step 3: Resolve Discrepancies
If your balances don’t match, use QuickBooks tools like “Locate Discrepancies” to find the issue.
Step 4: Finalize and Save Your Report
Once the difference is $0, finalize the reconciliation and save or print the report for future reference.
Still Need Help with QuickBooks? Let Bestaxhandle it for you! We’ll ensure your books are accurate and up to date.
Sample Bank Reconciliation Statement
Here’s an example:
Item
Adjustment
Updated Balance
Starting Ledger Balance
$5,000
Outstanding Check
-$200
$4,800
Service Charge
-$20
$4,780
Interest Earned
+$50
$4,830
By reconciling, your ledger matches the bank’s balance of $4,830.
Bottom Line – You Are Not Alone in This!
Bank reconciliation doesn’t have to be overwhelming. We are here for you! At Bestax, we specialize in making managing finances easy for you. Whether you need help reconciling books, preparing a bank reconciliation journal entry, or understanding concepts like outstanding deposits, we’re here to help.
Call us today or visit our website to learn how we can simplify your accounting and keep your business on track!
FAQs: Bank Reconciliation Statement
What is the purpose of reconciliation?
A bank reconciliation statement ensures that your financial records are accurate and aligned with your bank’s records. It helps identify errors, discrepancies, and even fraud.
For example: If your records show a payment was collected and deposited, but the bank statement doesn’t, there may have been a mistake or worse, a fraud.
Reconciling also ensures you have enough funds to cover expenses, helps track interest earned, and accounts for bank fees. Additionally, it provides a clear picture of your cash flow and helps manage accounts payable and receivable effectively
What are the two benefits of a bank reconciliation statement?
Track Cash Flow Reconciliation gives you a clear understanding of when money enters and leaves your business. For instance, if payments from clients are delayed, you can adjust your spending accordingly. This insight helps you plan better and maintain a healthy cash flow.
Detect Fraud While reconciliation can’t prevent fraud, it helps you catch it early.
Example 1: A vendor tampers with a check, withdrawing more than agreed. This discrepancy becomes evident during reconciliation.
Example 2: A business partner withdraws more funds than recorded in the books. You’d spot this as soon as the bank statement is compared with your records.
Fraud detection through reconciliation ensures your financial safety and peace of mind.
What is an important step in reconciling a bank statement?
The most crucial step is comparing the bank balance and book balance after making all adjustments. Ensure that all transactions—such as outstanding checks, deposits in transit, and bank fees—are accounted for. If the balances match, the reconciliation is complete. If not, investigate discrepancies.
How do I prepare a bank reconciliation statement?
Here’s a quick overview:
Gather your bank statement and accounting records.
Compare the ending balances of your bank and books.
Adjust for bank-only transactions (e.g., bank service charges, interest).
Adjust for book-only transactions (e.g., outstanding checks, deposits in transit).
Compare the adjusted balances.
Record any reconciliation adjustments in your accounting system.
Using accounting software like QuickBooks can streamline this process.
What is the format for a bank reconciliation statement?
A typical bank reconciliation statement template includes:
Particulars
Amount
Adjustments
Updated Balance
Starting Bank Balance
$5,000
$5,000
Outstanding Deposits
+$500
$5,500
Outstanding Checks
-$300
$5,200
Bank Service Charge
-$20
$5,180
Interest Earned
+$50
$5,230
This format helps organize adjustments and clearly shows how the reconciled balance is calculated.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
