Bank Reconciliation Statement for Accountants

Defining Bank Reconciliation

The process by which the bank account balance in an entity’s book of account is reconciled to the balance reported by the financial institution in the most recent bank statement is termed as Bank Reconciliation. Any difference between the two figures needs to be examined and rectified if necessary.

To ensure that the accuracy of a company’s records, a bank reconciliation should be completed at reasonably frequent intervals for all the accounts of the bank. Otherwise, it may result in check bounces or overdraft fees due to balances being much lower than expected. For more detailed learning about this, you can enrol for Accounting classes in Ahmedabad.

It might be better to terminate the accounts that are barely used that is there is so little activity that there is no need for periodic bank reconciliation. Rolling the residual investment into a more active account makes it easier to monitor the investment.

Conducting a bank reconciliation every day based on the bank’s month today information is an even better practice. It helps spot the mistakes and also allows room to correct them immediately. In particular, it will highlight any ACH debuts that have not been authorised. A debit block on the account can be installed to prevent the withdrawal of funds without proper permission or access.

The essential method flow for a bank reconciliation is, to begin with, the bank’s ending money balance, augment it any deposits in transit from the corporate to the bank, work out any checks that haven’t nevertheless cleared the bank, and either add or deduct the other things.

Then, move to the company’s ending money balance and deduct from it any bank service fees, independent agency checks and penalties, and augment it any interest attained. At the tip of this method, the adjusted bank balance ought to equal the company’s ending adjusted cash balance.Accounting Training and Placement helps you understand these concepts and how it.

Bank Reconciliation Terminology

There are certain key terms that you need to be aware of while dealing with reconciliation.

  • Deposit in transit: Checks that have not been registered in the records of the bank where the funds are deposited by the entity but that have been received and recorded by the entity. This deposit does not appear in the bank statement if it has been made at the end of the month and thus, it becomes a reconciliation item in the bank reconciliation. A deposit in transit occurs if the deposit arrives at the bank too late to be recorded that day or if the entity has mailed the deposit to the bank or if the deposit is yet to be made by the entity.
  • Outstanding check: A check payment recorded by the issuing entity but not yet cleared its bank account as a deduction from funds. It will not appear in the month-end if it has not cleared the bank yet. It becomes a reconciling item in the month-end bank reconciliation.
  • NSF check: A check that is not approved by the bank of the entity issuing the check, on basis that the entity’s bank account does not have adequate funds, is called an NSF check. NSF is a short form for “not sufficient funds.” The entity trying to cash an NSF check will be charged a processing fee by its bank. The entity issuing the check will certainly be charged a fee by its bank.

Bank Reconciliation Procedure

Assuming that the bank reconciliation is being created in an accounting software package the following steps can be followed:

  1. After entering the bank reconciliation software module, a list of uncleared checks and deposits will appear.
  2. All the checks that have been listed as having cleared the bank, should be checked off in the bank reconciliation module.
  3. All the deposits that have been listed as having cleared the bank, should be checked off too.
  4. All the bank charges appearing on the bank statement and which have not been already recorded, are to be entered as expenses.
  5. The ending balance is to be entered on the bank statement. If the records from the book and bank matches, then all the changes in the bank reconciliation can be posted. If not, they continue reviewing.

Problems With Bank Reconciliation

You should be aware of several problems that continually keep arising as a part of the bank reconciliation.

  • Uncleared checks that continue to not be presented. There will be some checks that are not presented to the bank for payment by the payee for a long time. Treat those checks like the uncleared ones and list them in that list in the software for the ongoing reconciliation. In the long term, the payee should be contacted and checked if they have received the check of not.
  • Checks clear the bank after having being voided by the bank. As mentioned earlier, if a check is unearned for a long time, you will probably need to void the one and issue a replacement. To avoid cashing the original check or double payment, you should make sure you void of either check. If they have been voided, when presented to the bank, they will be rejected.
  • Another problem may arise which is the change in dates covered by bank statement.

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Examples Of Bank Reconciliation

A company is closing its books for the month-end January 31. A bank reconciliation is to be made based on the issues.

Ending Bank balance340,000
New check printing charge300
Service charge100
Deposit rejection500
Deposit rejection fee charged10
Interest income40
Uncleared checks issued70,000
Late deposition checks20,000

The controller creates the following reconciliation:

Bank Balance340,000Debit expense, credit
-Check Printing charge300Debit expense, credit
-Service charge100Debit expense, credit
-NSF fee10Debit expense, credit
-NSH deposit rejected500Debit receivable, credit
+Interest income40Debit , credit interest income
-Uncleared checks70,000None
+Deposits in transit20,000None
Book balance289,130

Once the bank reconciliation process is complete, the software should allow you to print the report containing the book and bank balances. A copy of this report should be retained every month. You can collect these and put them together in a journal entries binder. This will give the auditors easy access to any information required later.

Author Bio-

Super 20 Training Institute is an institute established by a team of Chartered Accountants (CA) lead by CA Jigar Patel. We have created a buzz in the market, because of our unique methodology of ‘No books… Only practical’. We are known for our skill training programs in the fields of commerce. We provide training and consulting in the fields of Accounting, GST, Income tax, Tally, Accounting Softwares, etc.