Reconciliation Statement

A bank reconciliation statement is a financial statement that compares two sets of records to ensure that your book balance (the amount in your company’s accounting records) matches your bank account balance (the amount in your company’s bank account). A reconciliation statement helps to identify discrepancies such as missing transactions, typos, or errors; and bank charges that might be missed. 

The purpose of a reconciliation statement is to ensure that a company’s financial records are accurate and up-to-date. By comparing two sets of records and identifying any discrepancies, businesses and individuals can guarantee that their financial documents are correct. Reconciliation statements are crucial in detecting fraudulent activities, double-charged transactions, missed payments, and any calculation errors.

How To Do a Bank Reconciliation Statement

Here is a step-by-step guide to creating a bank reconciliation statement:

  • Step 1: Collect Documents

The first thing to do before starting your reconciliation statement is to gather all the relevant documents that you have relating to the bank account: your bank statement, cash book, and any other relevant records.

  • Step 2: Compare Balances

Compare the balance in your company’s accounting records (book balance) to that in your bank statement (bank balance). After confirming that these match, move on to the next step.

  • Step 3: List All Transactions

List all the transactions that have been processed by your bank but not yet recorded in your accounting records. This could include deposits, withdrawals, bank fees, and interest paid.

  • Step 4: Adjust Your Records

Use the transactions listed in step 3 to adjust your accounting records, to ensure that your records reflect all the transactions for the period you are reconciling.

  • Step 5: Check for Discrepancies

Compare the adjusted balance in your accounting records to the end balance on the bank statement. This allows you to check whether there are any discrepancies that need resolution. If there are any missing transactions or errors, correct them.

Example of Bank Reconciliation Statement

Let’s look at the example: Suppose your accounting records show a balance of $5,000, while your bank statement shows a balance of $4,800. After creating a list of transactions, we find out that you have made deposits of $600 and checks worth $100 were outstanding. Adjusting your accounting books, we arrive at a book balance of $5,500 ($5,000 + $600 – $100) and a bank balance of $5,500 ($4800 + $600 – $100). With these balances matching, we can conclude that all accounts have been accurately recorded.

The Importance of Bank Reconciliation in Month-End Close Process

The month-end close process involves reconciling all financial transactions, including bank transactions, to ensure that the company’s financial records accurately reflect its financial position.

Here are some ways in which the bank reconciliation statement is used in the month-end close process:

  • Identify Discrepancies: The bank reconciliation statement is used to identify discrepancies between the bank statement and the company’s financial records. These discrepancies can include errors in recording transactions, timing differences, and bank fees. By identifying these discrepancies, the company can make the necessary adjustments to its financial records to ensure accuracy.
  • Reconcile Cash Accounts: The bank reconciliation statement is used to reconcile cash accounts, including checking, savings, and petty cash accounts. This process ensures that the company’s cash balances are accurate and that all transactions have been properly recorded.
  • Verify Accuracy of Bank Transactions: The bank reconciliation statement is used to verify the accuracy of bank transactions, including deposits, withdrawals, and other bank charges. This verification ensures that the company is not missing any transactions that could impact its financial statements.
  • Accrue Bank Fees: The bank reconciliation statement is used to accrue bank fees that have not yet been recorded in the company’s financial records. This accrual ensures that the company’s financial statements accurately reflect all expenses, including bank fees.
  • Prepare Financial Statements: The bank reconciliation statement is used to prepare financial statements, including the balance sheet and income statement. The accuracy of the bank reconciliation statement is essential to ensuring the accuracy of these financial statements.

How AP Automation Can Help with Bank Reconciliation

Accounts payable automation can help businesses significantly with bank reconciliation statement by improving accuracy, speeding up the processing of invoices and payments, providing detailed reports, seamless integration, and easy access to data. AP automation can enhance your accounting processes, minimize human errors and provide timely, accurate insights, and financial records. With AP automation, businesses can streamline their financial procedures, enhance accuracy, and improve their bank reconciliation.