The cash balance on a company's balance sheet and the matching amount on its bank statement are compared in a document called a "bank reconciliation statement." It is possible to determine whether accounting changes are required by reconciling the two accounts. To guarantee that the company's cash records are accurate, periodic bank reconciliations are carried out.
The processing of payments and the deposit of cash receipts into the bank are confirmed by bank reconciliation statements. To make the necessary changes or corrections, the reconciliation statement aids in identifying discrepancies between the bank balance and the book balance. An accountant often processes reconciliation statements once each month.
You'll need your company ledger, current and prior month's bank statements in order to effectively perform your bank reconciliation. Although there are many online templates that might help you, a straightforward spreadsheet works just as well.
- Begin by entering your closing balance from the previous month.
- Subtract any checks in transit or add back any deposits that might not have cleared. This is your cash balance after adjustment.
- Now that you know your adjusted cash balance, add any interest that has accrued or subtract any charges, fines, or NSF checks that may not have been included in your business records.
- Verify that the sums of your deposits and checks that have cleared match what the bank has on file. The final balance then needs to be the same.
- If there are differences, look into what might have been overlooked in your recording or possible bank problems.
On its books, XYZ Holding Co. showed an ending balance of $480,000. Nevertheless, the bank statement indicates a closing balance of $520,000. Following a thorough inquiry, XYZ Holding discovered that a vendor's $20,000 check had not been handed to the bank and that a client's $20,000 deposit had been accidentally missed from the company's records. As a result, XYZ Holding updated its records to reflect the outstanding check and the missing deposit.
- Bank reconciliation reports are useful resources for identifying fraud. For instance, if a check is altered and the resulting payment is higher than anticipated, the dishonest activity can be stopped.
- Bank reconciliation statements also aid in finding mistakes that can have a negative impact on financial reporting. Financial statements are frequently used to determine profitability because they depict a company's health for a given time or period.
To find mistakes, omissions, and fraud, bank reconciliation statements are helpful check-and-balance tools. When regularly performed, they assist businesses in detecting fraud before it causes significant harm and stop errors from compounding. Additionally, it is a straightforward and helpful procedure for managing financial flows.