Managing your bank accounts, whether savings or checking, by reconciling them to your bank's records is a responsibility — and one of the best money management habits you can keep. Mapping Your Future can help you manage your accounts properly. Show
Keep recordsEven if you have online banking access, you should keep your own records of account activity. You don’t have to use a traditional bank register (also known as a checkbook or bank book), but you should keep track of all additions to the accounts (direct deposit of wages, check deposit, interest earned, etc.) and withdrawals from the accounts (purchases on a debit card (note cash back, if applicable), automatic bill payment, ATM withdrawals, transfers, etc.). Reconcile recordsYou should balance, or reconcile, your records for all of your bank accounts at least once each month when your bank statement is available. This is one of the best money management habits. Benefits of balancing your records:
Balance Your AccountsTo balance your accounts, follow these simple steps using the bank balancing tool below or other tools or software:
Balances don't match? Try these tricks:
What is a Bank Reconciliation?A bank reconciliation is the process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate. The information on the bank statement is the bank's record of all transactions impacting the entity's bank account during the past month. A bank reconciliation should be completed at regular intervals for all bank accounts, to ensure that a company's cash records are correct. Otherwise, it may find that cash balances are much lower than expected, resulting in bounced checks or overdraft fees. A bank reconciliation will also detect some types of fraud after the fact; this information can be used to design better controls over the receipt and payment of cash. If there is so little activity in a bank account that there really is no need for a periodic bank reconciliation, you should question why the account even exists. It may be better to terminate the account and roll any residual funds into a more active account. By doing so, it may be easier to invest the residual funds, as well as to monitor the status of the investment. At a minimum, conduct a bank reconciliation shortly after the end of each month, when the bank sends the company a bank statement containing the bank's beginning cash balance, transactions during the month, and ending cash balance. It is even better to conduct a bank reconciliation every day, based on the bank's month-to-date information, which should be accessible on the bank's web site. By completing a bank reconciliation every day, you can spot and correct problems immediately. In particular, a daily reconciliation will highlight any ACH debits from the account that you did not authorize; you can then install a debit block on the account to prevent these ACH debits from being used to withdraw funds from the account without your permission. It is extremely unlikely that a company's ending cash balance and the bank's ending cash balance will be identical, since there are probably multiple payments and deposits in transit at all times, as well as bank service fees (for accepting checks, recording deposits, and so forth), penalties (usually for overdrafts), and not sufficient funds deposits that the company has not yet recorded. Bank Reconciliation Process FlowThe essential process flow for a bank reconciliation is to start with the bank's ending cash balance, add to it any deposits in transit from the company to the bank, subtract any checks that have not yet cleared the bank, and either add or deduct any other items. Then, go to the company's ending cash balance and deduct from it any bank service fees, NSF checks and penalties, and add to it any interest earned. At the end of this process, the adjusted bank balance should equal the company's ending adjusted cash balance. Bank Reconciliation TerminologyThe key terms to be aware of when dealing with a bank reconciliation are:
Bank Reconciliation ProcedureThe following bank reconciliation procedure assumes that you are creating the bank reconciliation in an accounting software package, which makes the reconciliation process easier:
Problems with Bank ReconciliationsThere are several problems that continually arise as part of the bank reconciliation, and which you should be aware of. They are:
Another possibility that may be causing problems is that the dates covered by the bank statement have changed, so that some items are included or excluded. This situation should only arise if someone at the company requested the bank to alter the closing date for the company's bank account. Example of a Bank ReconciliationABC International is closing its books for the month ended April 30. ABC's controller must prepare a bank reconciliation based on the following issues:
The controller creates the following reconciliation: Bank Reconciliation StatementWhen the bank reconciliation process is complete, you should be able to print a report through your accounting software that shows the bank and book balances, the identified differences between the two (mostly uncleared checks), and any remaining unreconciled difference. Retain a copy of this report for each month. The auditors will want to see it as part of their year-end audit. The format of the report will vary by software package; a simplistic layout is: Bank Reconciliation Record KeepingIf you complete the bank reconciliation at month-end, then print the bank reconciliation report and file it in the monthly journal entries binder. This gives the auditors ready access to the information if they want to examine the reconciliations at a later date. What is the process of matching your personal records with the banks records of transactions called?A bank reconciliation is the process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement.
What are the steps for balancing your account?Eight Steps to Balancing. Record Interest Earned. ... . Record Service Charges, Etc. ... . Verify Deposit Amounts. ... . Match All Check Entries. ... . Check for Outstanding Items from Previous Statements. ... . Verify Other Debits on Statement. ... . List All Outstanding Checks. ... . Balance.. Why is it important to reconcile your personal check register against the bank's official paper statement or online statement?Reconciling your bank statements simply means comparing your internal financial records against the records provided to you by your bank. This process is important because it ensures that you can identify any unusual transactions caused by fraud or accounting errors.
Which type of check is guaranteed by the bank and signed by the banking official?A cashier's check is a check backed by the bank. The bank takes the funds from the person requesting the cashier's check and holds it in escrow, a special account specifically used to cover the check amount.
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