Bank Reconciliation

When to Reconcile
You should prepare a bank reconciliation when you receive your bank statement every month. You don’t want to leave it any longer than that because you must ensure that the money you think have in the bank for the operation of your business and for paying wages and settling bills, etc, is the same amount of money that the bank says you actually have with them.

You will have problems if you make payments based on cash you don’t actually have.

The correct amount of money in the bank available to you will not be known unless you do a bank reconciliation. It highlights costs that have gone through the bank account directly or amounts the bank has charged to your account that may have nothing to do with your business, in that they belong to someone else.

Possible Causes of Discrepancies
If your balance and the bank account balance don’t agree, you will need to investigate further.

Some of the possible causes of a bank balance difference are:

  1. Unpresented checks are incorrect in that the amounts are incorrect, or they have been added incorrectly.
  2. The deposits are incorrect in that the amounts are incorrect or they have been added incorrectly.
  3. The bank balance has been taken down incorrectly.
  4. You failed to record some charges and other items appearing in the bank statement.
  5. You failed to record a deposit or a check that has been paid out.
  6. You have errors in your mathematical calculations.

You should carry out the 4-step process set out below if you cannot find a discrepancy.

If Your Reconciliation Doesn’t Balance
If your bank reconciliation does not balance you will need to find what the problem is.

Here are 4 steps to follow:

  • Step 1: Check that every amount credited on your bank statement have been ticked off in your cashbook as a deposit.

  • Step 2: Check off that every amount debited on your bank statement has been ticked off in your cashbook as a check that has been paid.

  • Step 3: Make sure you have brought into your cashbook all items appearing on your bank statement that the bank has put on there without you knowing. These will involve bank charges, direct deposits, etc.

  • Step 4: Tally it all up and it should balance.