What is Bank Reconciliation?
You receive bank statement every month telling you your bank account balance as at that period. You also have a record of your company’s transaction in your cash account. The process of ensuring that the balance on your bank account is the same as the balance on your organization’s internal cash account is bank reconciliation.
Bank reconciliation statement is the report you prepare to ensure the consistency or compatibility of your bank balance and the balance of your company’s bank account in your accounting system. It helps to spot administrative mismanagement or fraud. You can easily correct errors made by either the bank or the company through regular reconciliation. Therefore, it ensures the accuracy of both the book balance and bank balance.
In large companies with big amount of transactions, reconciliation should be done daily where in smaller companies, it should be done at least on monthly basis.
The procedures to carry out bank reconciliation
- Examine your bank statement balance.
- Add deposit in transit (checks and cash deposited but yet to be collected from the bank) to the bank balance.
- Deduct uncleared or outstanding checks from the bank balance.
- Deduct expenses like bank charges from your company’s cash balance. Example of bank charges may include overdraft charges and processing fee non-sufficient fund (NSF).
- Add any interest accumulated by your bank account balance to your cash balance.
Once you finish this reconciliation process, the compare the bank balance with your cash balance. It must be the same but if it is not then you need to review the two balances to ensure they reconcile.
It is essential that you resolve any disagreement between your cash balance and your bank balance regularly to ensure the sustenance of your business. NESTED makes reconciliation a lot easier than manual reconciliation through automatic transaction to date match.