Bank reconciliation is the process of comparing the bank statement provided by the bank to the records of the company's own accounts. This process is carried out to ensure that the two sets of records are in agreement and to identify any differences.
There are several reasons why the bank statement and the company's records may not match. Some common reasons include:
Unrecorded transactions: The company may have made or received payments that have not been recorded in its accounts. For example, the company may have made a payment by check that has not yet been cashed by the recipient, or it may have received a payment by check that has not yet been deposited.
Bank errors: The bank may have made a mistake when processing a transaction. For example, the bank may have accidentally debited the wrong account or credited the wrong amount.
Bank charges: The bank may have deducted charges from the company's account, such as service charges or fees for overdrafts.
Interest: The bank may have credited interest to the company's account, or it may have debited interest for an overdraft.
To reconcile the bank statement and the company's records, the following steps should be taken:
Obtain a copy of the bank statement and compare it to the company's records of its own accounts.
Identify any differences between the two sets of records and try to determine the cause of the differences.
Make any necessary adjustments to the company's records to bring them into agreement with the bank statement.
Make a list of any outstanding checks and deposits that have not yet been processed by the bank.
Reconcile the bank statement with the company's records again, to ensure that all differences have been resolved.
Once the bank reconciliation is complete, the company should have a clear understanding of its current cash position and can make informed decisions about its financial management. It is important to regularly perform bank reconciliation to ensure that the company's records are accurate and up-to-date.
Use the ProperConvert app to make your bank transaction files compatible with your accounting software.