What is a Bank Reconciliation Statement? And how is it prepared?

Bank Reconciliation Statement is very necessary for companies to manage their finances. You may be wondering about this new term and what is its use and how it is prepared. So, don’t worry, we are explaining everything about the Bank Reconciliation statement in this guide and also the points for its necessity.

As we mentioned earlier, Bank Reconciliation Statement plays an important role in keeping a record of business transactions. It records the differences in bank statements and the general ledger of an organization. The amount recorded or specified in these two things may differ which can be corrected by taking a look at the reconciliation statement.

The main objective of this statement is to match cash account records to the bank statement for a selected time period. So, in this guide, we will explore the bank reconciliation statement format and the steps to prepare it.

What is Bank Reconciliation Statement?

A Bank Reconciliation Statement meaning is the record or report prepared by an organization to match the account balance with the mentioned balance in the bank statement. It is created by including all transactions made in a time interval in a company

These statements are helpful to keep a record of banking transactions and to ensure that the remaining balance matches the balance listed in the bank statement. It can also be called a summary of banking and business activities. This is helpful to manage finances and avoid fraud.

Why is the Bank Reconciliation Statement important?

Bank Reconciliation Statement helps organizations to manage their business transactions. With this, they can check accounting errors, fraud, and other finance-related mistakes. It is now a basic need of every organization to match their account transactions recorded by the accountant to the bank statement.

For example, there may be a chance that a transaction is mentioned in the company’s records but it is not shown in the bank statement. So, this may have happened due to some error or fraud.

We can’t say that the banks can do fraud with any company or an individual, but it is a must to recheck the bank statement with the ledger for safety reasons. The bank reconciliation statement helps organizations to ensure that they have sufficient funds to complete the company expenditures.

As the banks manage our assets in bank accounts, they also don’t want to make a loss. So, to keep the record of transactions safely reconciliation is a must. It also helps to record the amount of interest received or the fees charged by the bank. By applying a reconciliation process, organizations can understand their cash flow and manage accounts.

How to prepare a Bank Reconciliation Statement?

While starting to reconcile bank and business records, you have to keep the company ledger and current and previous bank statements with you. The bank reconciliation statement can be done through an online template or by using a spreadsheet.

Steps to do Bank Reconciliation

Step1. Select Starting Balance.

First, select your starting balance. The starting balance will be the same as the ending balance of the reconciliation of the previous month.

Step2. Reviewing deposits and withdrawals

Now take a look at your company’s ledger and check all the records like deposits, and withdrawals and check issues with the date listed in the bank statement also. All these records and the number of transactions should match and check if there is any error. All the records listed in the data must be included in the data of the bank statement.

Step3. Adjusting Cash Balance

With your bank statement balance, start adjusting your cash balance. Add all the deposits that have not been mentioned in the statement and deduct the check amount which is currently in the clearing process. After this, the ledger’s balance should match the bank statement balance.

Step4. Check Interest and fees

From Bank Statement, Now you have to search for any interest you earned and the fees charged by the bank which are not listed in the ledger.

Step5. Comparing end balances

After performing all the previous steps carefully, the bank statement balance should match the company’s ledger ending balance. If they don’t match, it means you made a mistake in the calculation or it happened from the bank side.

What are the benefits of a Bank Reconciliation Statement?

There are lots of benefits of the bank reconciliation statement format.

It helps to detect fraud.
This helps in identifying errors to alter financial reports.
It allows you to find out the company’s health based on ending balance and profitability.
Bank reconciliation statements help organizations to understand the cash flow.
Without reconciliation, the tax reporting of the company may be affected due to some errors present in the record. So the errors can be detected and removed by a Bank reconciliation statement.

Bank Reconciliation Statement Example

As we mentioned earlier, bank reconciliation helps to find errors while matching the transactions of bank statements with the company’s ledger. After that, it can be corrected to manage the company’s financial records properly.

For example, let’s say the bank statement lists the ending balance of $400,000 for the previous month. While the company’s ledger created by an accountant shows an ending balance of $392,000. So, you have to check the ledger if there is a transaction record missing that is not mentioned. After bank reconciliation, you found that the company check of $8,000 is not recorded in the ledger.

After all, you need to add these missing records and then both the ending balances will match each other.

When should we do Bank Reconciliation?

Bank reconciliation is very necessary to identify and correct errors. So, it must be done regularly and continuously after the generation of bank statements for a particular month.

What are the problems in the Bank Reconciliation Statement?

There is no problem in Bank reconciliation if it is done properly on a regular basis after every month. When you are going to check the financial records of the company with bank reconciliation after a long time, then you may get some problems.

Missing payment records are hard to find at an urgent time. So, it can lead to inaccurate reconciliation which also creates incorrect financial records of the company. To deal with this problem, it is suggested to use software for reconciliation.

Conclusion

A Bank Reconciliation Statement is very necessary to keep the financial records of the company. With this, the owner can take a look at the ending balance and ensure that the company’s account has sufficient money to cover expenses.

This helps to manage finances, understand cash flow, and check the credits and debts in the account. It can be done by using a tool or software or manually. This should be done on a regular basis to thwart fraud and errors in the financial records of the company.

I hope you enjoyed this post and got valuable information about the Bank Reconciliation Statement. So, keep reading with us, we are coming up with another amazing piece of information.