A bank reconciliation statement 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.
The bank account is listed as a current asset on the Balance Sheet.
If you are using accounting software with a bank feed or can import the transactions, it will be 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 right but will not pick up if the transaction is posted to the wrong account code.
How often do I Reconcile Bank Statements?
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 daily or weekly, but a small business may only need to complete it monthly.
It is worth trying to complete your reconciliation regularly when your bank statement is available. Banks are now reducing paper and, in some cases, not sending out account statements; if this is the case, download them from the online banking system.
A bank reconciliation is required for year-end for the accounts preparation to ensure the records on the accounting system match the bank. The figure is part of the balance sheet.
If you are VAT registered, ensure that the bank reconciliation is completed before the submission of the return. It ensures that all the transactions in the bank are posted to the accounts. Don’t rely on this alone, as other transactions are not on the bank statements that are included.
If you have more bank accounts, you will need to prepare a bank reconciliation for each account or credit card.
Why are Bank Reconciliations Prepared?
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, bank reconciliation is required.
There may also be items on your bank statement that will only be picked up by checking them; these include bank charges, interest, and payments made on direct debit or standing order.
Any errors in the statement period will also be found and corrected. These errors may include the following:
- Writing or posting the wrong amounts to the cash book or general ledger.
- Double Payments or missed payments.
- Fraudulent transactions or theft.
- Keeping track of accounts receivable and payable
Advantages of Using Accounting Software for a Bank Reconciliation
Accounting packages like FreshBooks, Zoho Books and QuickBooks make bank reconciliation more straightforward, as they 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:
The main advantage of using accounting software is importing a bank statement or using a bank feed. Although a bank feed saves time, I have also known them to post duplicate transactions.
Bank Reconciliation Statement Template
A bank reconciliation worksheet will calculate the differences between the bank statement and the cash book. Some of these differences may be timing differences, 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 that are 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.
The example shows two unpresented cheques and one sales receipt. The reconciled balance then equals the bank account balance.
How to Complete Bank Reconciliation Template
Here is a bank reconciliation process to help you reconcile to 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 that 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 onto 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 helpful 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.
Free Bank Reconciliation in Excel
We have produced a free printable Excel bank account reconciliation worksheet that you can download and use for any small business.
By downloading the template, you agree to our licence agreement.
Bank Reconciliation Summary
A Bank reconciliation compares the cash balance to the bank statement.
Differences can occur due to timing, mistakes and transaction not included in the accounting records like bank fees.
It is important to reconcile your bank for management reporting, especially at year-end.
Return from bank reconciliation to bookkeeping basics page.