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Guide to bank reconciliation (with a template)

The bank reconciliation process is an important component of accounting for any business. By reconciling what’s in your bank account with accounting transactions, you can ensure everything measures up as it should. Learn more about how this process works below. We’ve also included a handy template to help you get started.

What is bank reconciliation?

A bank reconciliation statement compares your company’s balance sheet and bank account. Ideally, the cash balance listed on the balance sheet should be equal to the bank statement. If there are any discrepancies, the bank reconciliation process keeps your cash records error-free.

Why might there be differences between accounting records and bank statements? There are many reasons why this happens, including:

  • Cash and cheques have been recorded by the company but are still in transit

  • Checks have been deposited but haven’t been processed yet

  • The bank has deducted service charges

  • The bank has paid interest into the bank account

  • A customer doesn’t have sufficient funds for their cheque to clear

  • Banking errors or fraud have occurred

Specialised accounting software is a good way to minimise these types of discrepancies, but it’s also a good idea to run through the bank reconciliation process every now and then to keep the books balanced.

The purpose of bank reconciliation

There are several reasons why you should make bank reconciliation a regular part of your business accounting process. Without verifying that your records match your bank account, you might not have the most accurate picture of business finances. You could miss out on common errors like double payments or even fraud.

The larger your business is, the more frequently you should complete a bank reconciliation statement. Larger businesses with lots of transactions should perform the process daily or weekly. However, smaller businesses can get away with a monthly reconciliation.

The bank reconciliation process: step by step

Bank reconciliation is a straightforward process, made easier with online accounting software. If you choose to do it manually, here are the steps to follow:

  1. Find your accounting cash book and bank statements. These should cover the same accounting period for comparison.

  2. Look at the opening balance on the bank statement and determine whether this matches the opening balance listed on your accounting records.

  3. Look at the transactions listed on both statements. If there are any entries that don’t match, you must make necessary adjustments. For example, if you see an income payment listed on your bank account, add this to your accounting record to match.

  4. Check the closing balance on both statements. After reconciling the mismatched transactions, these closing balances should be equal. If not, you need to repeat steps 1-3 until the accounts are reconciled.

Bank reconciliation template

You can use a bank reconciliation template like the one below as you complete the process.

BANK RECONCILIATION STATEMENT

DATE: XX/XX/XXXX

 

PARTICULARS

AMOUNT ($)

 

OPENING BALANCE AS PER BANK BOOKS

XXXX

ADD

Unpresented cheques

XXXX

 

Other credits

XXXX

 

 

 

LESS

Deposits in transit

XXXX

 

Cheques with insufficient funds

XXXX

 

Other items

XXXX

 

CLOSING BALANCE AS PER BANK BOOKS

XXXX

Bank reconciliation example

Now that we’ve walked through the step-by-step process and given you a template, here’s an example to further illustrate how this works.

Company ABC is closing its books at the end of the week and needs to prepare its bank reconciliation statement. Here’s what this bank reconciliation example would look like using the template above.

BANK RECONCILIATION STATEMENT COMPANY ABC

DATE: 31/03/2021

 

PARTICULARS

AMOUNT ($)

 

OPENING BALANCE AS PER BANK BOOKS

$200,000

ADD

Unpresented cheque

$5,000

 

Earned interest

$20

 

 

 

LESS

Service charges

$50

 

Cheques with insufficient funds

$100

 

 

 

 

CLOSING BALANCE AS PER BANK BOOKS

$204,870

The company’s statements have been adjusted to reflect the addition of an unpresented cheque and earned interest from the bank. They’ve also been adjusted to reflect the subtraction of service charges and a bad cheque that didn’t clear. Overall, the closing balance should now be reconciled with the bank statement. If not, it’s time to go back through all transactions to find out why.

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