How do you perform a Bank Reconciliation Process?

If you have missed it, we have already discussed the bank reconciliation statement and its importance. Now, we’ll jump out to know how to perform the bank reconciliation process.

When you do bank reconciliation, the first step is to identify the transactions that are causing your books and bank account to be out of sync. This allows you to line up the balances. Then you document what you did to reconcile the accounts.

We’ll go through each phase of the bank reconciliation process in greater depth later, but first, make sure your books are current. For the bank reconciliation to succeed, they must be present. Use our catch-up bookkeeping guide to get back on track if you’ve fallen behind on your bookkeeping (or hire us to do your catch-up bookkeeping for you).

How To Conduct Bank Reconciliation Process?

1. Check Your Cash Balances

You have two cash balances to check: the cash on your bank statements and the cash in your bookkeeping records’ “cash account” portion. 

You’re specifically trying to see if the “ending balance” of these two accounts for a given period is the same (say, for the month of December).

Even if you keep careful books, the balance reported in your books (again, the cash account) and the balance in your current account will rarely ever be the same. 

One explanation for this is that your bank may impose service fees or bank fees for excessive withdrawals even in online banking. Alternatively, when moving money from one account to another, there can be a wait. Alternatively, you should have written an NSF check (not sufficient funds) and reported the sum in your books normally, without realizing the check bounced because there was no insufficient balance.

2. Outstanding Check/withdrawal

This is a check or money transfer that you’ve submitted and registered in your books but the bank hasn’t processed yet.

3. Outstanding Receipt/Deposit

This is money that your business has collected and reported on its books but that has not yet been processed by the bank.

Outstanding checks/withdrawals, as well as outstanding deposits/receipts, aren’t risky if you keep track of them.

How To Record Bank Reconciliations?

After you’ve found out why your bank statement and accounting reports don’t fit, you’ll need to keep track of them. There are two options for accomplishing this.

Option 1 – Journal Entries Adjustment

All of your transactions are documented in journal entries (sometimes called debits and credits). The general ledger contains all of your journal entries. This is most likely an Excel sheet or handwritten paper if you aren’t using accounting software.

Option 2 – Statement Of Bank Reconciliation

This paper includes the same details as an adjusting journal entry, but it is saved separately.

Personal choice and need will determine which form you use. Consider when or when you may need to review your financial records for bank reconciliation, and which form of tracking would make the process simpler for you depending on how you hold your records.

How Often Do You Reconcile Bank Statements?

The frequency at which you reconcile bank statements is largely determined by the number of transactions you make. 

Some companies can reconcile their accounts regularly if money enters and exits their accounts several times per day.

Here, we would like to cite bank reconciliation examples. A restaurant or a busy retail store, both process a large number of transactions and can reconcile regularly. A small online shop, on the other hand, with days when no new purchases are made, might reconcile on a weekly or monthly basis.

It’s important to stay current. The more often you compare your bank statements, the less difficult it becomes each time.

If you haven’t reconciled your bank statements in six months, for example, you’ll need to review six months’ worth of line items. The number of transactions and the level of patience will determine whether or not this is a wise decision.

It’s best to stick to a routine. Have a plan for how much you’ll reconcile, and stick to it. This will prevent your unreconciled bank statements from being an overwhelming and time-consuming process. It will also keep you in touch with your company’s cash flow.

Final Words

Reconciling bank statements will bring a sense of peace and balance to some business owners. For others, it adds to the burden of doing their bookkeeping. If you fall into the above group, it might be time to consider hiring a bookkeeper to help you reconcile your accounts.

Open a bank account online, check if your financial information is correct and your accounting documents match the bank records when it comes to the amount of cash in your accounts, you’ve completed the process successfully and can relax.

However, keep in mind that the day you close your books is unlikely to be the same day the bank sends out its statements, so try to balance the accounts internally.


onEntrepreneur is an online magazine centered on the world of business, entrepreneurship, finance, marketing, technology and much more. We are regularly updated – sign up with our newsletter to send the updates directly to your inbox.

Leave a Reply

Your email address will not be published. Required fields are marked *