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How to Reconcile Bank Accounts?

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What is Bank Reconciliation?

Bank reconciliation is a process in which the financial records of your company are compared with your bank statement in order to reconcile the balances of the two accounts.

How to Reconcile Bank Accounts?

When we compare our financial records with our bank statement; at times some items are found that are not present or that do not match on both places. These are known as reconciling items. The reconciling item is then added or deducted from the books or bank’s reconciliation side.

The table below will given you an idea of the overall reconciliation procedure:

  • Deposits:

Make a comparison between the deposits recorded on the books of the organization and those recorded on the bank statement. This is done by putting check marks in the books and in the bank statement by the agreeable deposits and then determining the in transit deposits. These deposits normally take place when the period is ending covering the bank statement. For instance, when you make a night deposit in the bank on March 31st, it will be recorded in your books on March 31st whereas in your bank on April 1st. Hence, this deposit will not be present on your bank statement for March but will appear on that of April. Therefore, its very important to keep an eye on the in transit deposits recorded in the bank reconciliation of previous months with your bank statement.

  • Paid Cheques:

It is vital that you compare your bank statement with the canceled cheques. Moreover, determining outstanding cheques is imperative. Compare the cheques issued by your organization with the ones that are cleared by the bank. Also, keep an eye on the cheques that were sent back by the bank.

  • Credits and Debits:

Verifying each and every credit and debit memo on your bank statement is important. Compare the credit and debit memos of the bank with the books of depositor to check if it was already listed. Also, create journal entries for those entities that were not recorded in the organization’s books.

  • Banking Errors:

At times, there are errors made by the bank on terms of taking out or depositing money in your account. Contact you bank immediately to amend these errors but do not list those entries  in your organization’s books given that banking errors are unconnected with your records.

  • Books Errors:

Record all accounting errors. The most common mistake in this regard is recording a cheque in the bookkeeping records at an amount which is different from the genuine amount.

Thus, the in transit deposits, bank service fee and outstanding cheques generally make up the variance between the balance recorded by the bank and the cash account of the company. So, when your books and bank records are in concurrence, you can finally breathe a sigh of relief. This whole procedure may sound tedious; however, if you are using an accounting software for your bookkeeping requirements; the process becomes very simple.

LedgerMax is an accounting software that makes customers, suppliers and day-to-day finance management easy for all types of small and medium businesses. Here is how bank reconciliation is done in LedgerMax:

 

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