In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench). Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. While this will cause a discrepancy in balances at the end of the month, the difference will automatically correct itself once the bank collects the checks.
What is the purpose of a bank reconciliation statement?
He is the founder of the award-winning blog, Family Money Adventure, and host of the Family Money Adventure Show podcast. He has been quoted by publications like Readers Digest and The Wall Street Journal. Kevin’s work has been featured in Bankrate, Credible, CreditCards.com, Fox Money, LendingTree, MarketWatch, Newsweek, New York Post, Time, ValuePenguin and USA Today. However, you typically only have a limited period, such as 30 days from the statement date, to catch and request correction of errors. The usual procedure calls for the bank to send the depositor not only the notification but also the check itself.
- Bank statements also show expenses that may not have been included in financial statements, such as bank fees for account services.
- Likewise, ‘credit balance as per cash book’ is the same as ‘debit balance as per passbook’ means the withdrawals made by a company from a bank account exceed deposits made.
- The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books.
- The process also enables the company to record any interest payments the account has earned or fees the bank has charged.
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Many banks allow you to opt for fee-free electronic bank statements delivered to your email, but your bank may mail paper bank statements for a fee. A bank reconciliation is an essential process for ensuring that your company’s financial statements match the available cash in your business bank account. Performing regular bank reconciliations helps you 5 cash flow performance kpis every cfo needs to track stay on top of cash flow, keep organized records for tax season, and minimize the risk of fraud and theft.
However, there can be situations where your business has overdrafts at the bank, which is when a bank account goes into the negative as a result of excess withdrawals. This means that the company’s bank balance is greater than the balance reflected in the cash book. This practical article illustrates the key points of why a bank reconciliation is important for both business and personal reasons. If there’s a discrepancy between your accounts and the bank’s records that you can’t explain any other way, it may be time to speak to someone at the bank.
She has more than five years of experience working with non-profit organizations in a finance capacity. Keep up with Michelle’s CPA career — and ultramarathoning endeavors — on LinkedIn. A bank reconciliation is structured to include the information shown in Figure 8.6.
Step 3 of 3
Go through both statements and highlight any transactions that appear on only one side. Note that transactions may take a few days to clear, so the transaction date in your financial records may not precisely match the date on your bank statement. Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees.
Bank accounts for businesses can involve thousands of transactions per month. Due to the number of ongoing transactions, an organization’s book balance for its checking account rarely is the same as the balance that the bank records reflect for the entity at any given point. These timing differences are typically caused by the fact that there will be some transactions that the organization is aware of before the bank, or transactions the bank is aware of before the company. Many companies produce bank reconciliation statements regularly to ensure they’ve recorded all their banking transactions properly and that their ending balance matches the amount the bank says it has.
This way, you can ensure your business is in solid standing and never be caught off-guard. Maintaining accurate financial records makes it easier to organize your taxes when it comes time to file. Regular bank reconciliation saves you from having to review a full year of financial records—instead, you can quickly consult your reconciliation statements to review any required information.
This is accomplished by scanning the two sets of records and looking for discrepancies. If you find any errors or omissions, determine what happened to cause the differences and work to fix them in your records. In cases where you discover discrepancies that cannot be explained by your financial statements, it’s best to contact your bank. It’s possible that a banking error has occurred or that you have been charged for something you were unaware of. If the charges are not from your bank, the bank can also help you identify the source so that you can prevent any fraud or theft risk.