Bank Reconciliation Statement

Today we will tackle the infamous bank reconciliation statement. We’ll discuss why it is important, who does it, how to do it, and we’ll throw in some screenshots for good measure.

The reconciliation statement is important mostly because of timing differences. At the end of the month, year, or fiscal period your business will likely have written a check or two that has not cleared the bank as of yet. This means that the banks records will be different than your own internal accounting records.

Some private businesses are okay living with small differences between their records and the bank’s records. These businesses don’t take the time to reconcile; and to be honest, smaller companies with honest employees can probably get away with this.

Large companies are audited by external accountants and are required to fill out bank reconciliation statements.

Let’s now talk about reason why a business would want to reconcile (besides the fact that they are mandated to). The number one reason is that banks are not perfect. It turns out that they occasionally make an error and sometimes these errors are not in your favor (just like Monopoly). Consider the reconciliation statement a check on the bank’s work.

Another reason is to check for errors in your own records. If after reconciling for any differences between your records and the bank’s you still find errors, then you’ll want to make sure your accountants didn’t make an error. This is a real handy way to make sure everything has been accounted for properly, and it also gives you a gauge on the skill and integrity of your accountants.

How to Perform a Bank Reconciliation

Obviously the first thing you’ll need to do is to obtain both the bank statement for the period of interest and your accounting records. If the ending bank statement and your accounting records match, then you’re done!

Chances are you’ll have an outstanding check that has not cleared with the bank. When we say it hasn’t cleared, this usually means that the person with the check has not deposited it and thus the bank has not recorded it. For any outstanding checks like this you will need to deduct them from the bank’s number.

On some occasions your company’s records will reflect a deposit that the bank has not recorded yet in its accounts. This usually happens when you take a deposit to the bank late on a night when the bank is not opened. Your records will indicate the deposit, but obviously the bank’s will not. In these situations you need to add the deposits to the bank’s ending balance number.

Looking for more detailed information about bank reconciliation statements? Please check out the following resources:

http://www.uschambersmallbusinessnation.com/toolkits/tool/bankre_m – an excel template so you can do your own reconciliations

www.accountingcoach.com/online…course/13Xpg01.html – a detailed step by step guide to reconciling your bank statement

www.bookkeeping-course.com/lesson08.asp – another guide on how to perform a bank reconciliation; sometimes it helps seeing it from a different viewpoint.