5 Steps to Completing a Bank Reconciliation

As a business owner, sound financial health is key to your business’s growth. It’s important to review your transactions and ensure everything is accurate for every financial period. For that reason, it’s particularly vital to complete bank reconciliation to ensure your statements match.

This is something every business needs to do to reconcile every monthly statement. Your books and bank accounts statements must sync at the end of each month. This helps to protect your business’s financial health and prevent cases of fraud.

What is a Bank Reconciliation?

Bank reconciliation is comparing your book/cash records with your bank statement to ensure the transactions match. This is done to ensure every item in your book is accounted for before starting a new financial period.

You must review your general ledger records and compare them to your bank account statements. This means looking at the deposits and withdrawals of your bank account statement and the details of each transaction. If the balances don’t match, it’s important to identify the reasons and reconcile the difference.

How to Complete a Bank Reconciliation

Banks offer free statements every month, and your statement will itemize every transaction within a given month. Once you get the statement, here is what you can do:

1. Hire a CPA

The truth is, the process of bank reconciliation can be quite tedious, particularly if you don’t like to work with numbers. It even gets complicated when you have lots of errors or a huge mismatch. In this case, it’s best to work with a CPA.

Working with an experienced accountant allows you to get professional advice about your statement and expenses. Experienced tax professionals know how to do bank reconciliation properly. They will check all the entries and closing balances. If there are any differences, they will explain them and help you fix them.

2. Gather Documents

You’ll need the bank statement, which your bank offers for free each month by mail or electronically. Some banks also offer annual statements at a fee if you need one. Another key document is the check register—if you’re using accounting software, you can simply print this document.

Some companies use spreadsheets to keep track of everything. If you use them, ensure to keep strong records. With software programs, you can access your data easily and at any time.

3. Verify Deposits

The next step is to verify and account for all deposits, including those that your bank didn’t post by the statement’s date. Be sure to make a list of all outstanding deposits and deposits in transit. Also, make sure all the last month’s outstanding deposits are credited to your account.

You also need to account for checks—all checks on your bank statement should match what you have. If you have checks that haven’t been paid yet, be sure to list them as outstanding checks.

4. Adjust Totals

You’ll then need to adjust the totals for your cash account and bank statements to the correct balance. To adjust the bank statements, add deposits in transit, subtract outstanding checks, and deduct or add bank errors. Banks can make errors when creating a statement. Your CPA can help to identify them.

For cash balances, you can adjust them by deducting overdraft fees and monthly charges or adding interest. You’ll need to consider accounting errors, bank charges, and sufficient funds (NSF) checks. After adjusting the totals, you’ll need to compare the balances. Bear in mind that the adjusted totals should be the same. If they are not, you’ll need to repeat the bank reconciliation process until the balances are reconciled.

5. Record Changes

Once you complete the bank reconciliation process, you’ll need to keep the balances and differences as records. You can do this by adjusting your journal entries for the changes you made. Or, you can create a bank reconciliation statement, which contains the same records as your journal entry. You can choose whichever methods you want to use.

Take Care of Your Business Finances

The bank reconciliation process can be an intimidating task for some people, yet it’s a key task in proper financial management and business accounting. If it’s a stressful process for you, it’s advisable to hire a CPA to complete the process on your behalf. Just be sure you have all the records, data, and documents they’ll need to complete the task.

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