There are bank-only transactions that your company’s accounting records most likely don’t account for. These transactions include interest income, bank deposits, and bank fees. To ensure that your books are accurate, it’s important to reconcile your bank, credit card and petty cash accounts. You’ll need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or any checks issued that have not yet been presented for payment. At times, your business may either omit or record incorrect transactions for checks issued, checks deposited, or the wrong total, etc. There are times when your business will deposit a check or draw a bill of exchange discounted with the bank.
These time delays are responsible for the differences that arise in your cash book balance and your passbook balance. 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.
If this occurs, you simply need to make a note indicating the reasons for the discrepancy between your bank statement and cash book. When you have your bank statement in hand, you’ll compare each transaction with the ones entered into QuickBooks. We recommend reconciling your checking, savings, and credit card accounts every month. The information on your bank statement is the bank’s record of all transactions impacting the company’s bank account during the past month. Compare the ending balance of your accounting records to your bank statement to see if both cash balances match.
Review: What are bank reconciliations?
This is a simple data entry error that occurs when two digits are accidentally reversed (transposed) when bookkeeping for medium sized business posting a transaction. For example, you wrote a check for $32, but you recorded it as $23 in your accounting software. Ideally, you should run a reconciliation each time you receive the statement from your bank. The bank may send you a bank statement at the end of each month, each week, or, if your business has a large number of transactions, they may even send one at the end of each day. Preparing a bank reconciliation statement is done by taking into account all transactions that have occurred up until the date preceding the day the bank reconciliation statement is prepared.
Example 1: Preparation of Bank Reconciliation Statement Without Adjusting the Cash Book Balance
Most reconciliation modules allow you to check off outstanding checks and deposits listed on the bank statement. To reconcile means what is the journal entry for accounts payable to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another. More specifically, a bank reconciliation means balancing your bank statements with your bookkeeping.
How Often Should You Reconcile Your Bank Account?
Deposits in transit, or outstanding deposits, are not showcased in the bank statement on the reconciliation date. This is due to the time delay that occurs between the depositing of cash or a check and the crediting of it into your account. There are a few reasons your QuickBooks data may not match your account statements, including bank service charges, checks that haven’t cleared, and transactions that haven’t been entered in QuickBooks yet.
All of this can be done by using online accounting software like QuickBooks, but if you are not using accounting software, you can use Excel to record these items. This means that the company’s bank balance is greater than the balance reflected in the cash book. In addition to this, the reconciliation process also helps keep track the occurrence of fraud, which can help you control your business’ cash receipts and payments. To reconcile, simply compare the list of transactions on your bank statement with what’s in QuickBooks. If not, you’re most likely looking at an error in your books (or a bank error, which is less likely but possible).
At times, your customers may directly deposit funds into your business’ bank account, but your business will not notified about this the bank statement is received. When your business issues a check to suppliers or creditors, these amounts are immediately recorded on the credit side of your cash book. However, there might be a situation where the receiving entity may not present the checks issued by your business to the bank for immediate payment. Now, such a figure will be shown as a credit balance in your cash book, however, in the bank statement, that balance will be showcased as a debit balance and is known as the debit balance as per the passbook. If you want to prepare a bank reconciliation statement using either of these approaches, you can use the balance as per the cash book or balance as per the passbook as your starting point. These outstanding deposits must be deducted from the balance, as per the cash book, in the bank reconciliation statement.
- In addition to this, the reconciliation process also helps keep track the occurrence of fraud, which can help you control your business’ cash receipts and payments.
- All of this can be done by using online accounting software like QuickBooks, but if you are not using accounting software, you can use Excel to record these items.
- Once you complete the bank reconciliation statement at the end of the month, you need to print the bank reconciliation report and keep it in your monthly journal entries as a separate document.
- As QuickBooks ProAdvisor at Units Consulting Ltd. we can propose cost-effective Online QuickBooks Accounting Services for US and multinational companies.
- Therefore, such adjustment procedures help in determining the balance as per the bank that will go into the balance sheet.
There’s even a mobile card reader so you can swipe or dip the card from your phone or tablet. Remember that transactions that aren’t accounted for in your bank statement won’t be as obvious as bank-only transactions. This is where your accounting software price to earnings ratio can help you reconcile and keep track of outstanding checks and deposits.