What Do You Need to Know About Bank Reconciliation?

Bank reconciliation is one of the typical cash control processes. In business, bank statements reconciliation should be carried out by an individual who is not involved in disbursements functions and cash invoices. Reconciliation is done to determine mistakes (Also see How to Reduce Accounting Errors in Your Business), modifications and irregularities in the Cash in Bank account. By employing an independent individual to carry out the reconciliation, duties could be separated well and scams could be avoided (Also see Why is it Important to Reconcile the Bank Statement?).

There are various formats of the bank reconciliation but with the common functions. The reconciliation process compares the figures on the monthly bank statement with the figures reported in the cash book.

The differences between the balance on the Cash in Bank account of the company and the balance on the bank statement are caused by items are only recorded on the company’s account but not recorded on the bank statement (Also see Steps of Bank Reconciliation). Some examples are outstanding cheques which are written but not yet processed by the bank and deposits in transit which is the item recorded by the company but not yet recorded by the bank. The differences are also caused by items recorded on the bank statement but not recorded by the company. The examples are bank service charges, non-sufficient funds (NSF), interest earnings and notes receivable by the bank. NSF cheques are checks that are deposited but have been returned for non-payment.

Keep in mind that the balance per the bank statement is adjusted to the ‘correct’ figures; also, the balance per company’s books is adjusted to the ‘correct’ figures. These figures should match. When the correctly adjusted balance is sufficiently computed, journal entries need to be ready for all items in the reconciliation of the ending balance per company’s books to the correct balance (Also see Common Accounting Mistakes Made By Small Businesses). These entries are to record every transaction and occasion which affect the cash balance.

You may engage any accounting firm in Johor Bahru for more assistance on carrying out bank reconciliation for your business.