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The Importance of Bank Reconciliation and the Best Tools that We Can Use

First, what is Bank reconciliation?

The primary function of bank reconciliation, commonly known as checkbook reconciliation, is to compare individual transactions reported by the bank to ensure that all data the bank recorded is accurate and accounted for in the business's financial system.

Due to the number of bank accounts, the frequency of transactions, the variety of data sources, and the difficulty of continuously managing the reconciliation on a regular basis, this process frequently presents issues to organizations. It is possible to determine whether accounting changes are required by reconciling the two accounts. To guarantee that the company's cash records are accurate, bank reconciliations are done on a regular basis. They also aid in the detection of fraud and money laundering.

Bank Reconciliation Statement

A company or individual can prepare a bank reconciliation statement, which is a summary of banking and business activity. It is utilized to make a comparison between their bank account balance and the balance in their own records. This assertion explains the causes of any differences between the two. Throughout its financial periods, a business may generate a bank reconciliation statement at any moment.


What is the purpose of Bank Reconciliation?

One benefit is that it enables you to identify financial blunders before they spiral out of control. For instance, you would see the error during the bank account reconciliation procedure if you entered a check amount into your general ledger but neglected to physically cash the check. In addition, bank reconciliation helps you recognize theft or fraud and take quick action. Bank reconciliation will let you know whether money has been taken out of your account without your knowledge or permission.

How do we do a bank reconciliation? (Step by Step)

1. Obtain copies of the relevant documents and compare them.

You'll need a copy of your most current bank statement and access to your company's accounting data in order to reconcile your bank accounts. You'll need access to the cash book and general ledger, which include the details of your bank and cash transactions. Make sure the documents match by comparing each bank transaction to the equivalent transaction shown in your general ledger.

2. Resolve any discrepancies

Note any differences between the balance on your bank statement, your cash balance, and your transaction history.

There are differences in cash amounts can be explained by one of the following scenarios:

* Deposits in transit are payments that have been received by your company but have not yet been reflected by your bank.

* Outstanding checks are payments that your company has made but that your bank hasn't yet recorded.

* Interest payments accrue automatically on money that you deposit into checking or savings accounts that pay interest.

* Bank fees You can accumulate if you bounce a check, forget to make a payment or don't have the required minimum amount in your account.

To determine (and record) the cash balance on your bank statement, add the amount of any pending deposits and deduct the amount of any outstanding checks. a revised bank account balance. Similarly, to determine your business's adjusted cash balance, add any interest or bank service charges to the cash accounts.

There should be zero unreconciled difference between your general ledger and bank statement once you have compared the accounts, fixed any issues, and adjusted your bank and cash balances.

3. Make a statement of bank reconciliation.

A bank reconciliation statement is a financial record that lists the transactions in your bank account and the transactions that were internally recorded, demonstrating the consistency between the two records. Even if you execute bank reconciliation every day, you probably shouldn't create a bank reconciliation statement each time you reconcile your accounts. Statements are a wonderful approach to monitoring your company's finances elsewhere. You should make duplicates of these and keep the originals.

The statement should include the following information:

  • Your ending bank account balance

  • Your ending internal book balance

  • Any difference between the two balances

  • Adjustments made to your records of the two accounts.


If you have an unreconciled discrepancy that isn't 0, you should identify the issue as soon as possible. If your actual bank account balance differs from the data kept by your company.

List of Advantages of Bank Reconciliation:

1. Making accounts in good standing allows for this.

Maintaining your account in good standing through bank reconciliation implies that you are less likely to overdraw the account, which is defined as withdrawing or attempting to withdraw more money than what your account has when you are aware of the amount that can be spent in your account. Remember that overdrawing will lower your credit score and might result in fines from the bank. Despite the fact that certain financial institutions provide overdraft protection, they often charge you or your business a fee for using the service. Furthermore, you will experience greater repercussions if your account is not protected in this way.

2. It prevents theft.

You will be able to identify transactions that are recorded by the institution but are not in your records as you compare the transactions in your bank book with the bank's financial transactions. As you can see, documenting bank fees is a common procedure as you complete your reconciliation, though it's possible that you forgot to record this transaction. These inconsistencies will be shown by looking more closely at the original papers that are available. The most significant benefit of this is that it will highlight any bank transactions that were started by fraudsters attempting to steal money from your account.

3. It will keep mistakes at bay.

When a bank employs processes to prevent errors in your account, you'll know it's trustworthy, although mistakes do occasionally occur—the most frequent of which is a basic entry error. Nevertheless, once you've finished your reconciliation, banks will be able to fix these errors if you point them out.

4. It aids in finding accounting errors.

You can identify accounting errors that frequently happen in business, like multiple payments, addition and subtraction mistakes, missed payments, and misplaced checks, by using reconciliation. For instance, if you accidentally marked an invoice as "paid" on your ledger, a bank reconciliation may show that the check wasn't actually written. In some circumstances, even if the money has already been spent, you may be required to repay it since your bank made a mistake in your favor.

5. It achieves accurate balance.

A bank reconciliation will show which cash transactions have been completed and which ones have not yet been paid by the bank. The most frequent type of transaction that would still be open at the end of the statement period is a check, although if you made a deposit near the end of the month, the bank might not have cleared it as of the statement's closing date.

Key Takeaway:

When you try bank reconciliation for the first time, it might seem challenging, but with practice—and trust us, you'll have plenty of chances for that—it becomes easier. Remember that if you'd prefer not to perform bank reconciliation by hand, accounting software, including options for free accounting software, should save you some time and effort.

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Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at

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