A Bank Reconciliation Should Be Prepared Periodically Because

What Are The Steps To Reconcile A Bank Statement

How To Do A Bank Reconciliation (EASY WAY)

The first step in bank reconciliation is to compare your business’s record of transactions and balances to your monthly bank statement. Make sure that you verify every transaction individually if the amounts do not exactly match, those differences will need further investigation.

In the event that something doesn’t match, you should follow a couple of different steps. First, there are some obvious reasons why there might be discrepancies in your account. If you’ve written a check to a vendor and reduced your account balance in your internal systems accordingly, your bank might show a higher balance until the check hits your account. Similarly, if you were expecting an electronic payment in one month, but it didn’t actually clear until a day before or after the end of the month, this could cause a discrepancy.

True signs of fraud include unauthorized checks and missing deposits.

Benefits Of Preparing A Bank Reconciliation Statement

Preparing bank reconciliation statements can help businesses in the following ways:

  • Helps businesses identify any potential theft
  • Helps keep errors at a minimum
  • Helps businesses quickly detect accounting errors
  • Helps identify transactions cleared by the bank and the ones that are pending
  • Helps spot errors and update fees and charges
  • Helps detect any possibilities of fraud
  • The tracking of receivables also gets easier
  • Helps periodically track transactions

Forgetting To Record A Transaction

In this case, a check went out or a deposit was made, and you forgot to record it. Its very important to immediately track any outstanding checks so that youre aware of all activities. If a check went out, record it. If youre expecting a check to come in, make a note of it. Go line-by-line on your companys bank statement to double check if they match your internal records.

You May Like: What Do You Take For Period Cramps

Reasons For Difference Between Bank Statement And Companys Accounting Record

When banks send companies a bank statement that contains the companys beginning cash balance, transactions during the period, and ending cash balance, the banks ending cash balance and the companys ending cash balance are almost always different. Some reasons for the difference are:

  • Deposits in transit: Cash and checks that have been received and recorded by the company but have not yet been recorded on the bank statement.
  • Outstanding checks: Checks that have been issued by the company to creditors but the payments have not yet been processed.
  • Bank service fees: Banks deduct charges for services they provide to customers but these amounts are usually relatively small.
  • Interest income: Banks pay interest on some bank accounts.
  • Not sufficient funds checks: When a customer deposits a check into an account but the account of the issuer of the check has an insufficient amount to pay the check, the bank deducts from the customers account the check that was previously credited. The check is then returned to the depositor as an NSF check.

Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates.

Reasons For Preparing A Bank Reconciliation Statement

acct 201 chapter 7 and 8 terms Flashcards

There are several reasons why bank reconciliation is necessary. These include:

Identifying any accounting errors

Accounting errors, such as missed or double payments, are not uncommon. Bank reconciliation helps you to spot such accounting errors early. Most businesses want to know of any issues before they cause embarrassing situations.

You dont want your cheque or payment to bounce on an important customer. And your team doesnt want to have to deal with calls from irate suppliers. A bank reconciliation will ensure you know exactly which payments have been released.

Many companies are realising the benefits of investing in digital finance software and automating key processes, including bank reconciliations. This drives greater efficiency in their business and saves company resources. It also allows finance teams to spend more time on value-add tasks, such as evaluating data to inform company strategy and key decisions.

Managing risk

Bank reconciliations will help you to spot fraudulent transactions and reduce the risk of transactions that could cause penalties and late fees.

Tracking interest and fees

Regular bank reconciliations ensure you can keep track of all interest payments, fees or penalties your bank might add to your account. You can then add or subtract such amounts in your books.

Confirming receivables
Cash control
Improve accuracy and confidence in your balance sheet

Modern bank reconciliation software fully automates these processes. It enables you to:

Also Check: What’s Good To Eat On Your Period

What Are Best Practices For Month End Reconciliation

The month-end close process relies on reviewing accounting steps and reconciling accounts. Before being able to close books for that accounting period, this information must be made available for review.

The complexity of the process depends on the amount of transactions and records your team has to review. In most cases, itâll involve data like: inventory totals, total fixed assets, balance sheets, revenue totals, and more.

Not only must you consider the immense amount of data involved, but you must also be aware of timing differences that can affect the process. People across departments or within the same department may be involved in having to complete their own tasks before the sequential step can occur.

The multiple hands involved, as well as the necessity for complete and accurate data, can add to the challenge.

To overcome these hurdles, automation tools can play a major role. With a tool, you can reconcile accounts that are at high-risk for errors daily to avoid the domino effect of mistakes from snowballing out of control.

Automation tools will carry out flux analysis for you so you can spot mistakes in real-time. While this variance analysis may be conducted manually, by the time you recognise the difference between actuals and expected amounts, it may be too late to resolve them.

Beginners Guide To Bank Reconciliation

Whether youre a small business owner or just venturing out into the world of business, one of the things you need to pay close attention to is the Bank reconciliation process it is key when it comes to business management. If you get what is bank reconciliation it right, youre on your way to being in control of your finances. But getting it wrong means you could end up overpaying your tax.

In case youre wondering what is a bank reconciliation and what else the process entails, This blog aims at answering your questions and provides you with some practical advice to help ensure your books are up to date! Before we move on lets stop for a second and understand that it is crucial to enter all your transactions into your business accounting system first and then you can move on to bank reconciliation.

Don’t Miss: Early Signs Of Pregnancy After Missed Period

Why Is It Important To Reconcile Your Bank Statements

Understanding why bank reconciliation is important is the ultimate thing to achieve success in your business. Getting the process wrong would leave you with an inaccurate view of how much money is in your bank account, which could have costly consequences for your small business. A mistake that many small business owners make is not setting the opening balance of their business accounts to that of their bank account before they start recording transactions in their accounting records. Experts also suggest that a bank reconciliation should be prepared periodically because it can save you time and relieve stress.

Using Accrual Accounting And Cash Disbursement Journals

FA20 – Bank Reconciliation Example

If you use the accrual basis of accounting, as we recommend, you’ll record expenses in the cash disbursement journal at the time you pay for goods or services, or in the purchase journal if you purchase on credit.

Accrual accounting example

You own a variety store. You purchase from your main supplier, on account, items totaling $7,800. Most of the purchase is inventory for resale, but also included are $100 of office supplies. Make the following entry in your purchases journal:

If your business is a retail store, your journal entries might look something like this:

  • On February 2, you paid your electric bill of $177.
  • Also on February 2, you bought merchandise inventory on account from Ash Wholesale at a cost of $9,500.
  • On February 5, you spent $82 at Atkins Service Station to fill up your delivery vehicles with gas. You charge it all to the account you maintain with Atkins.
  • On February 8, you write a check for $9,500 in payment of the bill you receive from Ash.
  • On February 10, you write a check for $82 to Atkins Service Station to settle your account there.
  • Upon completion of this journal page, you should foot all seven amount columns. Since you are using a double-entry accounting system, you can see if all entries were recorded correctly. Check to see if the sum of the debits equals the sum of the credits. Total debits: 0 + 9,582 + 9500 + 82 + 177 = 19,341. Total credits: 9,759 + 9,582 = 19,341.
Purchases Journal for: February 2016
82 177

You May Like: My Period Is 5 Days Late Should I Be Worried

Bank Reconciliation Process Flow

The essential process flow for a bank reconciliation is to start with the bank’s ending cash balance, add to it any deposits in transit from the company to the bank, subtract any checks that have not yet cleared the bank, and either add or deduct any other items. Then, go to the company’s ending cash balance and deduct from it any bank service fees, NSF checks and penalties, and add to it any interest earned. At the end of this process, the adjusted bank balance should equal the company’s ending adjusted cash balance.

Why Is Reconciliation Important In Accounting

Reconciliation is a fundamental accounting process that ensures the actual money spent or earned matches the money leaving or entering an account at the end of a fiscal period.

Reconciling the accounts is a particularly important activity for businesses and individuals because it is an opportunity to check for fraudulent activity and to prevent financial statement errors. Reconciliation is typically done at regular intervals, such as monthly or quarterly, as part of normal accounting procedures.

Recommended Reading: Can You Get Pregnant Right Before Your Period

Consequences Of Not Reconciling Your Bank Statement

If there are any differences between the accounts and the amounts, these differences need to be explained. Reconciling your bank statements allows you to identify problems before they get out of hand.

Most importantly, reconciling your bank statements helps you catch fraud before it’s too late. It’s important to keep in mind that consumers have more protections under federal law in terms of their bank accounts than businesses. So it is especially important for businesses to detect any fraudulent or suspicious activity early onâthey cannot always count on the bank to cover fraud or errors in their account.

Why Use Automated Reconciliations

What Test Should Be Performed On Abrasive Wheels  howto.lif.co.id

Throughout this step-by-step guide, weâve continued to touch on the benefits of using an automation solution to conduct reconciliations.

Simply by outlining the pitfalls of manually performing reconciliations, it becomes very clear why using an automation tool is a best practice.

Manual reconciliations can cause many challenges and problems within a business environment. Itâs not to say that itâs impossible to make work, but in more cases than not, there will be issues involved. This includes:

  • Inability for standardisation
  • Miscommunication about where the process currently stands

When you introduce a tool to automate reconciliations, your business is able to: streamline the process, prevent the need for key person dependencies, standardise the reconciliation process, save time, minimise errors, prevent and/or reduce fraud, boost employee satisfaction, provide transparency, and increase an organisationâs confidence in its financial records.

Don’t Miss: How To Make Your Period Shorter

A Bank Reconciliation Should Be Prepared Periodically Because:

  • A Bank Reconciliation Should Be Prepared Periodically Because:

Question:- A Bank Reconciliation Should Be Prepared Periodically Because:

A. Any discrepancies between the depositors and the banks records should be identified, and either partys mistakes should be found and fixed.

B. The depositors records and the banks records are in agreement.

C. The bank must make sure that its records are correct.

D. The bank has not recorded all of its transactions.

Answer:- A. Any discrepancies between the depositors and the banks records should be identified, and either partys mistakes should be found and fixed.

A bank reconciliation statement is a document created on a regular basis to verify that all transactions are accurately recorded. This statement lists all deposits, withdrawals, and other actions that could have affected the bank account during the specified time period. As a result, the significance of bank reconciliation statements cannot be overstated and should be performed on a regular basis to enable quick identification of any discrepancies between the banks records and depositors records as well as prompt identification and correction of any errors.

What Is A Bank Reconciliation

A bank reconciliation is the process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate. The information on the bank statement is the bank’s record of all transactions impacting the entity’s bank account during the past month.

A bank reconciliation should be completed at regular intervals for all bank accounts, to ensure that a company’s cash records are correct. Otherwise, it may find that cash balances are much lower than expected, resulting in bounced checks or overdraft fees. A bank reconciliation will also detect some types of fraud after the fact this information can be used to design better controls over the receipt and payment of cash.

If there is so little activity in a bank account that there really is no need for a periodic bank reconciliation, you should question why the account even exists. It may be better to terminate the account and roll any residual funds into a more active account. By doing so, it may be easier to invest the residual funds, as well as to monitor the status of the investment.

Read Also: Can You Get Pregnant A Couple Days After Your Period

Why Prepare A Brs

Its not compulsory to prepare a BRS and theres no fixed date for preparing BRS.

BRS is prepared on a periodical basis for checking that bank related transactions are recorded properly in the cash books bank column and also by the bank in their books. BRS helps to detect errors in recording transactions and determining the exact bank balance as on a specified date.

When Does A Business Prepare A Bank Reconciliation Statement

Bank Reconciliation Statement Explained | FULL EXAMPLE

A business can prepare a bank reconciliation statement depending on the value and volume of bank transactions recorded by the business during a given period. It could be daily, weekly, monthly, quarterly, etc.

Preparing a Bank Reconciliation Statement in short intervals can help businesses maintain the accuracy of transactions and quickly identify any irregularities in the balance recorded by the business entity and the bank.

Read Also: Can An Early Period Mean Pregnancy

Maintaining Daily Cash Sheets

A cash sheet is a daily reconciliation of cash received and cash paid out. If a good deal of your business is transacted in cash, such as in a retail store, you should prepare a cash sheet at the end of each day. It’s sound practice to deposit all cash receipts in your bank account daily.

Your daily cash receipts should generally be the same amount as your daily bank deposit. Any reasons for a difference should be apparent on your cash sheet, suchas a small amount of cash paid out for a miscellaneous expense.If they do not match, you should investigate and reconcile any discrepancies between the two amounts.

Maintaining cash sheets provides an alert to any shortage or surplus of cash for the day. Some businesses opt to simply count the cash in the register at the end of the day without maintaining a cash sheet, leaving them clueless to any shortages or overages. A shortage could be the result of theft, or it could simply result from your failure to record a special transaction, such as an expense you paid in cashbut without a cash sheet, you’ll never know.

Among the Tools & Forms is a cash sheet for your use. Simply plug in your daily amounts to see instantly whether you have a cash shortage or surplus at the end of the day. You can use the spreadsheet over and over again for your daily needs.

How Often Should We Do Bank Reconciliation

A bank reconciliation should be prepared periodically because it is an important part of the internal controls of a company. Usually, most companies prepare bank reconciliations at the end of each month. That is because they receive bank statements at the end of each month. Some small-sized companies prepare bank reconciliations once every 2-3 months. While preparing bank reconciliations regularly is better than preparing it after a couple of months, if the number of bank transactions is low, companies may choose to perform it later.

In short, how often a company should prepare bank reconciliations depends on the level of activity in its bank accounts. For companies with a high number of bank transactions, preparing it every month or, if possible, several times in a month is better. That is because it can help the company detect any irregularities easily and fix them on time. On the other hand, for companies with a low level of bank activity, not preparing bank reconciliations is also an option.

Read Also: Perpetual Inventory System Vs Periodic Inventory System

Related Posts

Popular Articles