Bank reconciliation is a process that ensures the accuracy and consistency of an individual’s or business’s financial records by comparing their recorded transactions with the bank’s records. The purpose of bank reconciliation is to identify any discrepancies or errors between the two sets of records and to make necessary adjustments. Here are the basics of bank reconciliation:
Gather the bank statement
Obtain the most recent bank statement from your bank, either in the form of a paper statement or an electronic statement accessible through online banking.
Collect your records
Gather your financial records, including your chequebook register, receipts, and any documentation of transactions such as invoices or bank deposit slips.
Compare deposits
Begin the reconciliation by comparing the deposits recorded in your financial records with the deposits listed on the bank statement. Ensure that all deposits made by you have been accurately reflected on the bank statement.
Compare withdrawals
Next, compare the withdrawals or payments recorded in your financial records with those listed on the bank statement. This includes checks you have written, electronic payments, and any debit card transactions. Verify that all withdrawals made by you are correctly reflected on the bank statement.
Reconcile discrepancies
As you compare your records to the bank statement, you may identify discrepancies or differences. These discrepancies can include missing transactions, errors in the amount or timing of transactions, or outstanding checks or deposits that have not yet cleared the bank. Make note of these discrepancies, as they will need to be addressed during the reconciliation process.
Adjust your records
After identifying the discrepancies, make any necessary adjustments to your financial records. This may involve adding missing transactions, correcting errors, or accounting for outstanding transactions.
Update your bank balance
After making the necessary adjustments, update your bank account balance in your financial records to reflect the adjusted balance. This adjusted balance should now match the ending balance listed on the bank statement.
Reconcile to the adjusted balance
Finally, compare the adjusted bank account balance in your financial records to the ending balance listed on the bank statement. If the balances match, your reconciliation is complete. If they do not match, review your adjustments and repeat the process until the balances align.
Bank reconciliation is an essential practice for maintaining accurate financial records and detecting any discrepancies or errors that may have occurred. It helps ensure that account balances are correct, supports financial reporting, and provides insights into the financial health and efficiency of an individual or business. Performing regular bank reconciliations can help identify and resolve any issues promptly, maintaining the integrity of financial records.
