Try FreshBooks for free to streamline your tax preparation and bank reconciliations today. Human error in the data entry process can sometimes lead to incorrect amounts or miscalculations on a business’s financial statements. While it cannot entirely erase the potential for data processing errors, using accounting software can reduce the likelihood of errors to help generate more accurate financial statements. Accurate cash flow is essential for keeping a business running smoothly, so it’s important to be aware of all incoming and outgoing cash. A bank reconciliation is the process by which a company compares its internal financial statements to its bank statements to catch any discrepancies and gain a clear picture of its real cash flow.

It’s important to perform a bank reconciliation periodically to identify fraudulent activities or bookkeeping and accounting errors. This way, you can ensure your business is in solid standing and never be caught off-guard. If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month.

These charges won’t be recorded by your business until your bank provides you with the bank statement at the end of every month. These outstanding deposits must be deducted from the balance, as arrears payment per the cash book, in the bank reconciliation statement. Making sure a company’s and its bank’s listed balances align is also a way to ensure the account has sufficient funds to cover company expenditures.

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Nevertheless, on 5 June, when the bank pays the check, the difference will cease to exist. At the bottom of your spreadsheet for February, add this note, tracking changes to your balance. We offer reconciliation reports, discrepancy identification, and live accountants to work with for ease and confidence when closing your books. Our writers and editors used an in-house natural language generation platform to estimated liability assist with portions of this article, allowing them to focus on adding information that is uniquely helpful.

You have to go back and compare your records with the bank’s to try and figure out what went wrong so you can correct your records to how to report your interest income match the banks. A bank reconciliation statement is only a statement prepared to stay abreast with the bank statement; it is not in itself an accounting record, nor is it part of the double entry system. Additionally, bank reconciliation statements brings into focus errors and irregularities while dealing with the cash.

1. All of your bank and credit card transactions automatically sync to QuickBooks to help you seamlessly track your income & expenses.
2. This means that the check amount has not been deposited in your bank account and hence needs to be deducted from your cash account records.
3. Deduct from the bank statement balance the proceeds of any check that you have issued and entered in your accounting record but have not been presented to paid by the bank.

Reasons of difference between bank records (bank statement) and depositor’s accounting record:

For some entrepreneurs, reconciling bank transactions creates a sense of calm and balance. If you’re in the latter category, it may be time to think about hiring a bookkeeper who will do the reconciling for you. Reconciling your bank statements won’t stop fraud, but it will let you know when it’s happened.

How Often Should You Reconcile Your Bank Account?

You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business, as well as any expenses paid by the business. This includes everything from wages and salaries paid to employees to business purchases like equipment and materials. Bank statements also show expenses that may not have been included in financial statements, such as bank fees for account services.

When all these adjustments have been made to the books of accounts, the balance as per the cash book must match that of the passbook. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook. So it makes sense to record these items in the cash book first in order to determine the adjusted balance of the cash book. Once the adjusted balance of the cash book is worked out, then the bank reconciliation statement can be prepared.