Steps of Bank Reconciliation

When you perform bank reconciliation, you need to compare the records of the activities of your bank account that the bank has recorded and your records of the activities of that same account. By doing so, you may know whether your records are the latest and update your records to match the records of the bank (Also see How to Reduce Accounting Errors in Your Business). Also, you can determine the differences between both the records. This helps in spotting any mistakes the bank has made.

In short, bank reconciliation is a process you need to conduct when it comes to making sure that the balance of your chequing account is accurate. If you are not sure about how you should complete bank reconciliation, you can refer to the guide below, or you may consider hiring an accounting firm in JB to help you out. Bank reconciliation is also crucial when your company has an audit as a thorough bank statement reconciliation at the end of the year is what the audit firms would request when they are conducting an audit for your business.

Here are the steps you should take when you are reconciling a bank statement:

Step 1

The bank will send you a bank statement at month-end. The bank statement will list down all the cheques that the bank has cleared, deposits you have made into your chequing account, as well as various charges the bank has made to your account. At the back of this statement, you shall see a reconciliation form. You can use that form to reconcile your bank statement, or you can opt to use your own reconciliation form it the latter is easier for you.

Step 2

You need to match every deposit that you have recorded to those transactions that the bank statement has stated. If there is a deposit that you have made, but the bank has not received it in your records, then you should list it as a reconciling item, which you should add to the ending cash balance of your bank account.

Step 3

Next, make comparisons between the amount of deposits you have recorded and the amounts that the bank has recorded. There might be a possibility where the bank rejected a cheque among the cheques that you have deposited, or the bank has recorded a different amount for a cheque. If this happens, you should add the amount of rejected cheque to the ending cash balance.

Step 5

If the amount on a cheque that the bank has recorded is different from what you have recorded, you may have done the accounting records wrongly. If this situation happens, you should adjust the amount of that deposit you have recorded. If it is the bank who made a mistake, you should contact the bank and tell them the situation. After that, do not forget to record the amount of difference as the reconciling item.

Step 6

You should treat all the cheques that you have listed in the bank statement as the cheques that the bank has cleared. Then, match them with those that you have recorded in your cheque register. Next, put a tick beside the cheques in your cheque register that match those on the bank statement. When you are doing this, keep in mind to compare the sum of those cheques. If the amount that you have recorded and the records of the bank are different, you should make alterations to your records or report the difference to the bank.

Step 7

In your cheque register, list down all the cheques that the bank has not cleared yet. You should record these uncleared cheques as a reconciling item and deduct the, from the ending cash balance of your bank account.

Step 8

Then, look over the debits and credits of the miscellaneous account on your bank statement and check whether you have recorded them using double entry accounting. There is a high possibility that you have not listed any of these items. Therefore, you should adjust the cash balance for them before you proceed. The miscellaneous items may include account maintenance fees, charges for overdrafts, as well as fees for bounced cheques.

Step 9

You need to add or deduct the amounts for all the reconciling items you have listed from the ending balance of your bank account. Next, compare the resulting amount to the ending cash balance that you have recorded. If the sums are not tally, there is a possibility where their opening balances do not match. If this happens, you should conduct bank reconciliation for the last period. Another possible cause of such a condition is you have not determined all the reconciling items in the current period. This can be easily detected by various audit approaches if not don’t right.

Step 10

When you have completed the bank reconciliation process, you should clip the bank statement and the list of reconciling items together. Otherwise, list the reconciling items to the reconciliation form at the back of your bank statement. Then, don’t forget to keep this information for future reference.