Bank reconciliation is a process used by businesses to ensure that their bank statement matches their accounting records.
Here’s a step-by-step guide on how to prepare a bank reconciliation:
1. Gather Information
Collect the bank statement for the period you’re reconciling.
Access your company’s accounting records, including the cash account ledger.
2. Compare Dates
Ensure that the transactions on the bank statement correspond to the same period as your accounting records.
3. List Outstanding Checks and Deposits
Identify any outstanding checks (issued but not yet cleared by the bank) and outstanding deposits (made but not yet reflected in the bank statement).
4. Adjust for Bank Charges and Interest
Check for any bank fees, charges, or interest earned that are not yet recorded in your books.
Make adjustments accordingly.
5. Compare Amounts
Go through each transaction on the bank statement and compare it with the corresponding entry in your accounting records.
Mark off each transaction as you verify it.
6. Note Discrepancies
If you find any discrepancies (e.g., missing transactions, different amounts), investigate and note the reasons for the differences.
7. Reconcile Cash Balances
Adjust your accounting records for any outstanding checks or deposits, as well as any discrepancies found.
Make sure your adjusted book balance matches the ending balance on the bank statement.
8. Prepare Reconciliation Statement
Create a reconciliation statement summarizing the adjustments made and explaining any differences between your records and the bank statement.
9. Update Accounting Records
Make necessary adjustments in your accounting records based on the reconciliation.
This may include recording outstanding checks or deposits, correcting errors, or adding missing transactions.
10. Review and Document
Review the reconciliation statement and supporting documentation.
Document the reconciliation process and any actions taken to resolve discrepancies.
11. Investigate Discrepancies
If there are unresolved discrepancies, investigate further to identify and rectify any errors or omissions.
This may involve contacting the bank or reviewing additional records.
12. Repeat Regularly
Perform bank reconciliations regularly, ideally every month, to ensure ongoing accuracy in your financial records.