Bank reconciliation is a process of comparing transactions recorded on a personal or business checkbook to the bank statement. It enables it so that your records can be actual and reflect the transactions in your bank account so that you can be able to identify errors that have occurred and anomalies in the record.
Through the six steps discussed above, one can unify and simplify the reconciliation process as well as gain clarity regarding financial position.
To begin the process of comparing your bank statement to your own statement, you will need to collect your bank statement for the required period and your records such as checkbook registers, accounting software or receipts. It is advisable that you prepare all the required documents and details before you start.
The first step is to verify the beginning balance shown on the bank statement, even a fake bank statement for loan, as compared to the beginning balance in one’s records. These balances should tally if the previous reconciliation was performed well. If there are any differences, try to figure out why they are there – duplicates, checks that have not been cashed or deposits that have not been processed.
Second, examine each transaction on your bank statement and check its consistency with the respective record. This includes the various checks you have written; deposits that you have made; the electronic transfers; ATMs withdrawals as well as the various fees and charges that you have incurred. Write “OK” beside each transaction that you have accounted for.
As you reconcile each transaction, pay attention to any discrepancies between your records and the bank statement. Common discrepancies may include:
- Outstanding Checks: Checks that you’ve written but haven’t been cashed or processed by the bank yet.
- Outstanding Deposits: Deposits that you’ve made but haven’t been credited to your account by the bank.
- Bank Fees: Charges imposed by the bank for services or transactions, such as monthly maintenance fees or overdraft fees.
- Interest Earned: Interest earned on your account balance, which may not be reflected in your records until the bank statement is issued.
- Errors: Mistakes made by either you or the bank, such as recording the wrong amount for a transaction.
If you discover any discrepancies, investigate them thoroughly to determine their cause. For example, contact the recipient of an outstanding check to verify if it has been cashed. Similarly, check your deposit slips or receipts to ensure that all deposits have been accurately recorded by the bank.
Once you’ve reconciled all transactions, calculate the ending balance in your records by adjusting the beginning balance with the reconciled transactions. This should match the ending balance on your bank statement. If the two balances don’t match, review your reconciliation to identify any errors or omissions.
Finally, document your reconciliation process and any adjustments made to your records. Keep a record of the reconciled bank statement for future reference and comparison. Regularly reconciling your bank statement will help you maintain accurate financial records, detect errors or fraudulent activity promptly, and make informed financial decisions.
In conclusion, reconciling your bank statement with your personal or business records is a crucial step in managing your finances effectively. By comparing your records with the transactions listed on your bank statement, identifying discrepancies, and resolving any issues, you can ensure the accuracy and integrity of your financial information. Make reconciliation a regular part of your financial routine to stay organized, informed, and in control of your finances.