7 Steps to Audit Your Bank Reconciliation Statement

During the month, they make several deposits into this account and also write checks to pay for various expenses. At the end of the month, they receive their bank statement from ABC Bank, which shows an ending balance of $9,500. It is even better to conduct a bank reconciliation every day, based on the bank’s month-to-date information, which should be accessible on the bank’s web site. By completing a bank reconciliation every day, you can spot and correct problems immediately.

A detailed year-end bank statement reconciliation is commonly requested by an audit firm as part of its annual audit procedures. A check that a company mails to a creditor may take several days to pass through the mail, be processed and deposited by the creditor, bookkeeping and tax planning strategies for plumbing companies and then clear the banking system. Therefore, company records may include a number of checks that do not appear on the bank statement. These checks are called outstanding checks and cause the bank statement balance to overstate the company’s actual cash balance.

Not Sufficient Funds Cheques

NetSuite users can automatically import bank data, saving time and improving accuracy. For instance, the MD Restaurant Group, a chain based in Illinois, is using NetSuite’s bank reconciliation functionality to compare financials from 19 different entities. Basically, what you’re doing here is recording a change to the cash accounts in your general ledger. The bank account balance will adjust naturally as the transactions you identified in the second step move through the banking system.

They are helpful when reconciling accounts to print statements, clearing errors, etc. They can also be helpful when reconciling accounts for pulling reports.Another example would be where you deposit cash, but the teller doesn’t post it correctly. You have to go back and compare your records with the bank’s to try and figure out what went wrong so you can correct your records to match the banks. Outstanding checks are those that have been written and recorded in cash account of the business but have not yet cleared the bank account. This often happens when the checks are written in the last few days of the month. Non-sufficient funds (NSF) checks are recorded as an adjusted book balance line item on the bank reconciliation statement.

A staff accountant typically does the actual reconciling of the company’s accounting records and bank statements, in accordance with segregation of duties best practices. At a big company, there would typically be several people within the accounting department to handle different account reconciliations. It’s common for the owner to do the bank reconciliation at a smaller company. Interest is automatically deposited into a bank account after a certain period of time.

• A bank reconciliation begins by showing the bank statement’s ending balance and the company’s balance (book balance) in the cash account on the same date.
• The following tips, however, can be applied to any organization’s bank reconciliations.
• Similarly, if a businessman deposits any checks on the last day of the month, these cheques may be collected by his bank and shown on his bank statement three or four days later.
• It is up to you, the customer, to reconcile the cash book with the bank statement and report any errors to the bank.
• There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them.

Bank reconciliation statements are often used to catch simple errors and accidental discrepancies. For example, if a check is altered, the payment made for that check will be larger than you anticipate. If you notice this while reconciling your bank accounts, you can take measures to halt the fraud and recover your money. Regularly creating a bank reconciliation statement allows you to find errors by comparing your company ledger with your bank statement. Banks use debit memoranda to notify companies about automatic withdrawals, and they use credit memoranda to notify companies about automatic deposits.

Example #3: Bank Balance More Than Cash Book

Powered by technologies, such as AI/ML, advanced bank reconciliation software make anomaly detection, variance analysis, and financial close task management easier for analysts. Bank reconciliation helps to identify errors that can affect tax and financial reporting. You can do a bank reconciliation when you receive your statement at the end of the month or using your online banking data. Some businesses, which have money entering and leaving their accounts multiple times every day, will reconcile on a daily basis. There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them.

Such a fee is typically deducted automatically from your account. Therefore, while preparing a bank reconciliation statement you must account for any fees deducted by the bank from your account. When you prepare the bank reconciliation statement for the month of November as on November 30, 2019, the cheque issued on November 30 is unlikely to be cashed by the bank. You need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or the cheques issued but not yet presented for payment. At times, your business entity may omit or record incorrect transactions for cheques issued, cheques deposited, the wrong total, etc. Thus, such a situation leads to the difference between bank balance as per the cash book and balance as per the passbook.

Needs and Importance of Bank Reconciliation Statement

They can also be used to identify fraud before serious damage occurs and can prevent errors from compounding. Making sure a company’s and its bank’s listed balances align is also a way to ensure the account has sufficient funds to cover company expenditures. The process enables the company to record any interest payments the account has earned or fees the bank has charged. Although separate journal entries for each expense can be made, it is simpler to combine them, so bank fees expense is debited for $70 and cash is credited for $70. The interest revenue must be journalized and posted to the general ledger cash account.

From the following particulars of Zen Enterprises, prepare a bank reconciliation statement as of December 31, 2021. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account. After adjusting all the above items what you get is the adjusted balance of the cash book. As mentioned above, bank overdraft is a condition where a bank account becomes negative as a result of excess withdrawals over deposits. And set up a system that makes it quick and easy to grab the records you need. This might be in a logbook, on a spreadsheet, or in an accounting software package.

What is a bank statement?

But, the cheque has not yet been cleared by the bank as a deduction from the company’s cash balance. In addition to ensuring correct cash records, the bank reconciliation process also helps in keeping track of the occurrence of any form of fraud. Such insights would help you as a business to control cash receipts and payments in a better way. The first entry records a debit to the cash account and a credit to the bank reconciliation account.

Rather than manually reviewing and reconciling accounts, the system automatically reconciles based on pre-determined criteria. It’s time to evaluate a new tool, not only for an effective control framework and audit process but for the balance sheet reconciliations overall. The accounting department is responsible for mitigating risk for the organization, not adding to the concern.

The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books. Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening. Your bank reconciliation statement helps bring any missing money to the surface, so it is essential that payment issuance and reconciliation are separated. Bank reconciliation statements should be audited in-house at least once a month and at least once a year by an external auditor. Discover seven essential steps for auditing your organization’s bank reconciliation statements.

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You must post the journal entries of all the adjustments made to the balance as per the cash book. Once you post the journal entries into your company ledger accounts, make sure that the cash account balance is equal to the adjusted balance per cash book shown in the bank reconciliation statement. They can also investigate any fee charges or interest payments from their bank statement that need to be adjusted in their own books.

• Reconciling bank statements with cash book balances helps you, as a business, to know the underlying causes that lead to such differences.
• You need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or the cheques issued but not yet presented for payment.
• You must post the journal entries of all the adjustments made to the balance as per the cash book.
• If a transaction isn’t showing on your bank statement, it’s most likely because you got income that you didn’t bank, or you paid for something out of a different account or with cash.
• NSF cheques are an item to be reconciled while preparing the bank reconciliation statement.

The Vector Management Group’s bank statement on page 120 includes a $20 service charge for check printing and a $50 service charge for the rental of a safe‐deposit box. Bank Reconciliation is the process of comparing your business’ books of accounts with your bank statements. It is done periodically to check whether the bank-related transactions are recorded properly in your books of accounts. Bank reconciliation is the process of matching the bank balances reflected in the cash book of a business with the balances reflected in the bank statement of the business in a given period. Such a process determines the differences between the balances as per the cash book and bank passbook.