A bank reconciliation is an essential part of accounting procedures. To complete the bank reconciliation, you will need to compare the transactions in your cashbook or accounting system to the transactions on your bank statements. Record any differences in a bank statement reconciliation report. It will ensure that all your transactions in the bank account are recorded accurately in the accounting system.
If you are using accounting software with a bank feed or can import the transactions, this will make it easier to have the correct figures in your accounts. Bank feeds are generally accurate, but sometimes mistakes do occur. Completing the reconciliation will ensure that the figures are correct, but will not pick up if the transaction is posted to the wrong account code.
It is worth trying to complete your reconciliation regularly when your statement is available. Banks are now reducing paper and in some cases not sending out statements, if this is the case, download them from the online banking system.
Why is Bank Reconciliation Necessary?
Comparing your bank statement to the cash book will ensure that your transactions are all posted and that all your bank transactions are complete. If you compare the statements to the accounts and notice a difference in the balance figure, a bank reconciliation is required.
It will depend on the size of the business and how tight cash is as to how often it is required. A larger company may need a bank reconciliation on a daily or weekly basis, but a small business may only need to complete it monthly.
There may also be items on your statement which will only be picked up by checking them; these include bank charges, interest and payments which are made on direct debit or standing order.
Any errors in the statement period will also be found and corrected. These errors may be writing amounts down incorrectly in the cash book.
Reconciliation of the bank will also show up any fraud. It is much easier to sort the problem promptly.
Accounting packages like XERO FreshBooks and QuickBooks make bank reconciliation more straightforward, as it will show the bank balance and the balance in XERO. It will also show how many transactions are available for reconciliation. An example is below:
Bank Reconciliation Template
A bank reconciliation worksheet will explain the differences between the bank statement and the cash book. Some of these differences may be timing differences; this is especially the case near the statement end date.
Timing differences can occur for the following reasons:
- The time involved in post
- Payments can take several days to clear the bank
- Banking receipts completed after the bank close off time.
Here is an example of an Excel bank reconciliation statement.
The example shows two unpresented cheques and one sales receipt. The reconciled balance then equals the bank balance.
How to Complete Bank Reconciliation Template
Here are some simple guidelines to help you reconcile your bank statement:
- You will need to check off (tick) any payments and receipts which appear in both the cash book and bank statement.
- Make any amendments to the cash book as required. These are items which appear on the bank statement but are different or missing from the cash book.
- On the Bank reconciliation template, list any payments which are not cleared.
- List any payments received which have not been cleared.
- Fill in the totals from the cash book and bank statement on to the reconciliation statement.
- When all this has been completed, the balance at the bank should equal the reconciled balance.
If there is any difference, check through again, it is sometimes easy to miss small mistakes. It is sometimes useful to work out how much the difference is, so it is easier to track down. To do this take the balance from the reconciled statement and deduct the balance as per the bank.
We have produced a free printable Excel bank reconciliation worksheet which you can download and use free of charge. By downloading the template, you agree to our licence agreement.
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