How To Get Your Bank Reconciliation Correct (With Examples) (2024)

Bank reconciliation is a time-consuming process often prone to human errors. When youcompare bank account balanceswith the organization's books, these figures need to match. If they don't, it could point to a missing transaction or an error in record-keeping. This can leave your company vulnerable to overdrafts, denied payments and bounced checks, to name a few.

Increase the accuracy of your financial reporting and account reconciliation processes with this guide on how to achieve accurate bank reconciliations consistently.

Key Takeaways:

• To mitigate errors in your bank reconciliation process, you must reconcile accounts regularly, compare statements with your cash books and use automation to eliminate the manual tasks that can lead to these mistakes.
• Common issues with your bank reconciliations include bank transfers, returned or voided checks, double or overpayments and missing or uncleared checks.
• If your reconciliation doesn't balance, adjust the records to account for any missing data. For example, note uncleared checks and adjust the balance until the check clears.

How To Get Your Bank Reconciliation Correct

Source: Instructor Brandon

Step 1: Reconcile Accounts Regularly

We recommend to reconcile your bank account each time you receive a bank statement, usually at the end of each month, week or even daily in high-volume businesses.

Before starting your reconciliation, ensure all transactions up until the end of the bank statement period have been recorded. Organizations using online banking services can upload bank statements for regular reconciliations.

Step 2: Compare and Adjust Bank Statements With Cash Books

Match deposits in your business records with deposits on the bank statements. Next, compare each deposit amount recorded in the deposit and withdrawal column of the bankbook with the credit of the deposit and withdrawal statement.

Compare each deposit amount recorded in the bank deposit and withdrawal column, and in the deposit and withdrawal statement. Carefully review transactions that appear in both records.

After reconciling bank and ledger balances, the adjusted amounts should correspond. If they don't, you'll need to repeat the reconciliation process. When the balances match, document any adjustments made to reconcile the book balances for future reference.

Step 3: Reduce Errors With Automation

Companies benefit greatly from an efficient bank reconciliation process. However, this process can be extremely labor-intensive as accountants need to manually analyze data to prepare bank reconciliation reports.

Additionally, there may be delays in processing transactions at the bank, resulting in differences between the bank statement and internal cash record. This can lead to numerous errors or discrepancies in bank reconciliation statements.

Let's take a look at the various challenges of the bank reconciliation process and practical examples of bank reconciliation errors:

• Cash-in transit not reflected on either record: With electronic funds transfers such as ACHs, credit card payments and wire transfers, the cash may not instantly reflect in the bank balance, resulting in a difference between the statement and the cash book.
• Outstanding checks not reflected on either record: Uncleared checks can cause many errors in bank reconciliation reports. Delays in depositing or processing checks will prevent your bank statement balance from matching your cash book.
• Manual errors linked to bank reconciliations: Accountants may enter inaccurate transaction details or accidentally fail to count bank fees or interest. These human errors can cause issues.
  
  

It creates a controlled and auditable environment, allowing you to reconcile balance sheets quickly and correctly for faster onboarding. You can also securely assign duties to specific team members performing reconciliations and control access to sensitive information.

We even designed our program to handle multiple currency reconciliations, making it ideal for organizations that operate globally or have international suppliers.

Common Issues Found During Bank Reconciliation

A primary reason for conducting bank reconciliations is to identify any discrepancies or issues, locate the source of the problem and make the necessary adjustments. Here are a few common issues you are likely to face:

• Checks that are returned after being deposited
• Voided checks being cleared by the bank
• Double payment
• Missing and uncleared checks
• Poor controls with EFTs

Examples of a Bank Reconciliation

So, as of May 31, the company's ledger or cash account shows a debit balance of $7,000. However, the bank statement for May 31 shows a balance of $5,975.

The differences in the balances in the ledger and bank statement require reconciliation to determine the cause of the discrepancy. To do this, we need to compare the details of the two records.

For example:

• The bank has yet to process the $2,000 deposit made on May 31, which is missing from the bank statement.
• Your bank charges a monthly service fee of $25 that you did not record in the company's financial records.
• A check for $1,000 remains uncashed and is not reflected on the company's bank statement.

To reconcile your books, you must fill in the missing transactions to balance both your balance sheet and bank statement. You can reduce the cash account balance by adding the $25 service fee. That will bring your new balance to $6,975.

You can also increase the bank balance in your records by $2,000 to reflect the deposit and then decrease it by $1,000 to account for the uncashed check. This adjustment will bring your balance to $6,975, reconciling the differences.

Simplify Your Financial Close With Bank Reconciliation Automation

Eliminate common reconciliation errors with templates designed by finance experts at Vena. Our templates ensure that your bank reconciliations are always correct. To demonstrate our commitment to streamlining finance operations, we offer afree Excel-basedbank reconciliation templateto show you how Vena can optimize your entire finance department.

To learn more about effective bank reconciliations, check out these articles by our experts:

• What Is Account Reconciliation?
• Overcome Barriers to Account Reconciliation

• 4 Steps To Close Faster With Account Reconciliations