How to Prepare a Bank Reconciliation, Step By Step Process

How to Prepare a Bank Reconciliation –A crucial tool for managing your cash balance is a bank reconciliation. The process of reconciling involves comparing the cash activity recorded in your accounting records to the transactions recorded in your bank statement. You can keep track of all of your bank account’s cash inflows and outflows with this procedure. You can also use the reconciliation process to find fraud and other unauthorized cash transactions. As a result, reconciling your bank account within a few days of receiving your bank statement is essential.

How to Prepare a Bank Reconciliation

The accounts payable department is in charge of the bank reconciliation accounting. It is a method for contrasting a company’s personal records with bank statements in order to identify any discrepancies, errors, cash manipulations, or fraudulent charges.

After comparing the cash balance on a balance sheet to the balance on a bank statement, a bank reconciliation statement is produced. Performing a reconciliation helps determine whether accounting adjustments are required. Bank reconciliations are carried out on a regular basis, typically every week or every month. Differences are more likely to occur the longer you wait. No system is flawless.

How to Prepare a Bank Reconciliation

How to Prepare a Bank Reconciliation Details

Acritical name How to Prepare a Bank Reconciliation
Category How To Guide
Year 2023
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Adjusting the Bank Statement Balance

Examine the bank statement balance

Immediately access your bank statement. Your bank statement should be available shortly after the end of the month if you have online access to your account. Take note of the month-end balance when you receive the statement. Your objective is to reconcile any discrepancies between the bank balance and the records of your cash account. This entails determining whether each transaction appears on both your bank statement and your own records.

  • On a bank statement, the terms “debits” and “credits” refer to transactions in and out of the account. The accounting profession uses these terms in a different way than these definitions.
  • A “reconciling item” is one that only appears in one place—your cash account or your bank statement. Your objective is to fix the two records until they match by determining why they don’t.
  • One way to think of a bank reconciliation is as a formula. The formula is (Bank statement balance) minus (reconciling items) plus (Cash account balance per your records). Your bank reconciliation is finish when this formula is in balance.
  • The term “balance per book” refers to your cash account balance. The balance for each bank is shown on the bank statement. Items that need to be reconcile account for the difference in these two balances.

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How To Complete A Bank Reconciliation Procedure

Here are the steps for completing a bank reconciliation:

  1. Get bank records.

  2. Gather your business records.

  3. Find a place to start.

  4. Go over your bank deposits and withdrawals.

  5. Check the income and expenses in your books.

  6. Adjust the bank statements.

  7. Adjust the cash balance.

  1. Compare the end balances.

1. Get bank records

Access to a list of your transactions is necessary for reconciling your records. This data can be accessed via online banking, a bank statement, or by permitting your financial institution to share data with your accounting software.

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2. Collect your company’s records

You’ll also need access to your company’s books and ledger. This data is typically stored in an accounting program, logbook, or spreadsheet.

3. Find a place to start

3. Choose a starting point based on the last time you balanced your books. If you’re not sure, try to remember the last time your bank account balance and books were equal and work from there.

4. Check your bank statements

For all of your deposits and withdrawals to ensure that they are properly accounted for. Assuming there is a thing missing, you should add it in.

Check the income and expenses in your books

5. Make sure that every transaction is properly accounted for by comparing your books to the bank statements and checking your income and expenses. Find out why there is an item that is not matched. It’s possible that a payment hasn’t cleared yet or that you forgot to pay in cash for something.

6. Adjust the bank statements

There are times when a company’s transactions are not accurately reflected on a bank statement. Checks that are still outstanding, errors made by the bank, or deposits that are still in transit are common causes. Make the necessary adjustments to the bank statement, regardless of the reason.

7. Change the money balance

You will likewise have to change your records to mirror the organization’s all’s exchanges precisely. This will be accomplished by ensuring that the cash account of the company accounts for all deposits and charges.

8. Compare the end balances

After matching the records and making adjustments, you will need to confirm that the end balances are the same, and the reconciliation process ought to be finished. You will need to repeat the procedure in order to locate the error if they are still unequal.

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Common Issues Found During Bank Reconciliation

The ability to identify any problems is one of the key purposes for conducting a bank reconciliation.

  • Checks that are denied after being deposited: The bank may refuse to accept a check in certain circumstances. This is often the case when a check is being issued from a foreign bank account. If a problem develops, you’ll have to rectify the indication for the failed deposit by transferring funds from the cash account to reduce your balance and credit in the account for accounts receivable.
  • Voided checks being cleared by the bank: If a check remains uncleared by the bank for an extended period of time, you will most likely void the check and produce a duplicate if it is not cleared. The payee, however, may still attempt to cash the original check on rare occasions. They should refuse to cash a check that has been voided through the bank. You’ll need to apply a credit to the cash account as well as a debit explaining the payment if the bank wasn’t informed about the voided check.
  • Double payment: A voided check might result in a double payment if you fail to contact the bank about it. You’ll have to request reimbursement from the payee in situations when the payee cashes a returned and replacement check.
  • Missing and uncleared checks: Missing and uncleared checks are common with most banks. Continue reconciling them as uncashed checks for future checks. You’ll likely have to ensure that the check was delivered to the payee, and in certain cases void the check and then issue a new one, for checks that have been uncleared for an extended period of time.
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Increase the bank balance for any deposits that have not posted (also known as deposits in transit)

When you make a deposit at the bank, it may take some time before the amount in your account shows up as an increase. The delay may be brief if you deposit funds at an ATM or bank branch. The delay may be longer if the deposit is sent by mail.

  • You immediately add the deposit amount to your cash account. You have a reconciling item because the bank has been holding off on posting the deposit.
  • To accurately reflect the cash amount, the balance on the bank statement would need to be credite (or increase).
  • Let’s say, for instance, that your bank balance was $5,000. On July 31, you deposited $1,500. The $1,500 deposit does not appear on your July bank statement.
  • You would add $1,500 to the balance on the bank statement to reconcile the balance, bringing the total to $6,500. The $1,500 must be reconcile.

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Decrease the bank balance for all outstanding checks

A check that has been recorde in the bank’s books is referre to as a “cleared check.” An outstanding check is any check that has not cleared the bank. When checks are written in the last two days of the month, this situation arises. The bank balance must be deducted from any outstanding checks.

  • Let’s say the bank account balance is $5,000. You add $1,500 in incoming deposits to the bank balance to properly account for them. The bank balance is now equal to (5,000 dollars plus 1,500 dollars, or $6,500).
  • Let’s say that five $3,000 checks remain unpaid at the end of the month. The adjuste bank balance is reduce by $3,000 to account for outstanding checks. ($6,500 minus $3,000 = $3,500) is your new adjuste bank balance.
  • Check the statement from the previous month to make sure that any unpaid checks from the previous period have cleared this month. Contact the payee (the person who ought to receive the payment) to find out why a check has not cleared yet. The check may be lost if it remains unpaid after a month.

Check for any errors made by the bank’s processing department

Your accounting is entered into the general ledger when you reconcile a business cash account. The general ledger of the cash account and the activity on the bank statement should be compare by a business. You might encounter a transaction that you are unable to fully explain. Contact your bank if you are unsure about a personal or business bank transaction.

  • “Transposing,” or reversing the numbers on a deposit amount or check, is one possible error. For instance, the bank might record a deposit of $570 instead of $750. An error that is always a multiple of nine occurs as a result of this (180 in this instance). Request that the reconciling item be remove by contacting your bank.
  • If the difference isn’t cause by a bank error, it could be evidence of fraud. Let’s say that a dental office is run by a secretary. When the secretary is eating lunch, the checkbook is on the front desk. A visitor cashes a check that was taken from the checkbook.
  • The check is fraudulent when it is deposited into the bank account. Additionally, let’s say that the dentist sees the deposited check on the bank statement.
  • When the dentist calls the bank, the bank adds money to the account again. The reconciling item is thus eliminate.

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Adjusting the General Ledger Balance

Verify that all checks have posted

You should print a report outlining all of the checks written and deposits made during the month when your company gets the bank statement. Report-generating accounting software is probably available to a business.

  • You should look over your deposit slips and check register when reconciling your personal bank account. The cash reports should be printed, as well as the check register and deposit slips.
  • In a numbered list, go over all of the checks you’ve written. Check to see if the check showed up on your bank statement. In your records, indicate that the check cleared your bank. Either a manual report or accounting software can be use to record the cleare check.
  • You should also look over checks from the month before. Check to see if those checks appeared on the bank statement for the current month. In the event that the check cleared, note this in your records. Contact the payee if the check has not cleared. The check could be misplace.
  • You ought to compile a list of each check that has not yet been deposited into the bank account after you have completed your review.
  • The payee, the amount, and the check number ought to be on that list.
  • Your month’s unpaid checks are represente by the total amount. A reconciling item are outstanding checks.

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Confirm that all deposits have posted

A list of all monthly deposits should be print by a company. Additionally, the business ought to examine each deposit slip. A list of your deposits and your deposit slips should be in your checkbook when reconciling your personal account.

  • Check the deposits that were record in the bank’s records for the month when you get your bank statement.
  • Sort your checkbook deposits by the date they were made. Check to see if each deposit was record on the bank statement.
  • At the end of the previous month, you should also look over any deposits that were in transit. Check to see if those deposits appear on the bank statement for the month in question.
  • You should compile a list of each deposit that has not yet been credit to the bank account once your review is complete. The deposit amount and the deposit date ought to be on that list.
  • Your month’s in-transit deposits are represent by the total dollar amount. A reconciling item are deposits that are in transit.

Subtract any service charges and automated debits.

All bank charges must be deduct from your cash account. A monthly service charge is one type of bank charge. If your account balance is too low, you might also be charge. The majority of these costs are shown on your bank statement, but they may not show up in your cash account at the end of the month. Additionally, you must adjust your cash records to account for interest on your bank account balance.

  • For instance, if a $10 service fee appears on the bank statement, it must be deduct from the cash account. It is a reconciling item until the amount is record in your cash records.
  • Add any interest you earn to the balance in your account. Typically, you won’t find out how much interest your account has earn until you get a bank statement. Add any interest that the bank has add to the balance of your cash account. The amount is a reconciling item until you record the interest.
  • Remove any recurring payments. For some recurring bills, many accounts may have monthly payments set up automatically. You may not see the withdrawal until it appears on the monthly bank statement if the payment date for auto payments is not mark on your calendar. Examine the bank statement.
  • Transfer any unpaid automatic debits to your cash account. A reconciling item will be remove in this step.
  • Remove any checks with NSF. If a “not sufficient funds” check bounce during the month, this indicates that the amount of the check was not deposit into your account.
  • The check amount must be deduct from your cash account records. You must also deduct the fee that the bank charges you for depositing a bad check. If your account goes over its limit, you will also be charge.

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Check for any errors you’ve made during the month

You might discover mistakes as you compare your cash account activity to that of the bank. You might, for instance, update your cash records with the incorrect amount for a deposit or check. A reconciling item will be create by those errors.

  • If your balance is off by a multiple of nine, such as $270 or $630, you probably transpose your money incorrectly.
  • This indicates that you erroneously change the order of two deposit digits. For instance, you might have written a check for $310 but record it as $130 in your records.
  • Your (cash account balance) plus or minus all (reconciling items) should equal the (balance per the bank statement) once you have complete all of your reconciliation work. Review your work until you have correctly account for all of the reconciling items if that formula is not equal.


Preparing a bank reconciliation can be a helpful way to ensure that your finances are in order. By reconciling your bank account statements and accounts, you can ensure that all transactions are recorded and accounted for. This can help you track your progress and make any necessary adjustments to your financial plans. By preparing a bank reconciliation regularly, you can keep your finances secure and on track, ensuring that you reach your goals and objectives. If you have any questions or concerns about reconciling your bank account, don’t hesitate to contact us for assistance. We would be happy to help you prepare a bank reconciliation that will help you achieve your financial goals.


What is bank reconciliation format?

A bank reconciliation statement could be defined as the summary of the banking and business accounts that reconciles a company's bank account with its financial record. The statement contains a record of all the deposits, withdrawals and other financial activities with a bank over a certain period of time.

What is the formula for reconciliation?

The formula is (Cash account balance per your records) plus or minus (reconciling items) = (Bank statement balance). When you have this formula in balance, your bank reconciliation is complete. Your cash account balance defined as your book balance (or balance per book).

What is bank reconciliation and how it is prepared?

A bank reconciliation statement (BRS) is a statement that a company prepares on a particular date to match the bank balance indicated in its cash book with the balance shown by the bank's passbook. The statement displays the reasons for the differences between the two.

How do you prepare a bank reconciliation statement?

Match the Deposits. Once a bank statement is received, the first thing to do is compare deposits. ... Make the Bank Statement Adjustments. The accounting records in-office should be used to adjust the bank statement. Make the Cash Account Adjustments. Compare the Balances.

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