How Do You Do a Bank Reconciliation?

Remember balancing a chequebook? A bank reconciliation is the equivalent concept.

The cool kids call the bank reconciliation the bank rec.

Business owners are required to balance their accounting records to the bank statements at least on an annual basis. This helps make sure that the financial statements are accurate and you get all the available deductions. If you do this reconciling yourself you will save bookkeeping charges.

The reconciliation process is arithmetical. You print out your bank statement (or open the envelope if you get paper statements). Now print out the general ledger account for the bank account you are attempting to reconcile. Print out only the current months activity.

Now you compare the two printouts and cross out the items that are on both the bank statement and the general ledger printout.

You should be left with items that are on the bank statement and are not on your records and vice versa. Typical items that are on the bank statement and not on your records are bank charges. Items that are not on the bank statement but are in your records include cheques you have written but have not been cashed by the recipient. These items are called outstanding cheques.

You should now be able to balance the number at the end of your bank statement with the number on the general ledger. Take the bank statement number and subtract any outstanding cheques and add in any outstanding deposits. Take the general ledger number and subtract the bank charges and anything else that has been deducted from your bank account. These two numbers should now be the same. Do the dance of joy and ask yourself why you are not a bookkeeper when this is so rewarding. (Pause for accounting humour.)

The next step is to make any corrections that are needed. You will need to record bank charges on your books. Outstanding cheques and outstanding deposits do not require adjustment, they are only timing differences. If a customer has given you a cheque that has bounced you need to record this fact so your books will show that the payment is still outstanding and you need to contact the client. Your general ledger account will now agree to the bank

Individuals likely don’t have accounting records to compare to their bank statements but the process of looking at the statement and making sure that there are no unauthorized withdrawals is still important. Some banks will not correct a mistake if you find it more than 30 days after it was made so take a look at those statements regularly.



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Painless Financial Training Group Inc. with Debi Peverill

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