Connecting bank accounts to financial statements Show
What is a Bank Reconciliation?A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed. Bank reconciliations are completed at regular intervals to ensure that the company’s cash records are correct. They also help detect fraud and any cash manipulations. Reasons for Difference Between Bank Statement and Company’s Accounting RecordWhen banks send companies a bank statement that contains the company’s beginning cash balance, transactions during the period, and ending cash balance, the bank’s ending cash balance and the company’s ending cash balance are almost always different. Some reasons for the difference are:
Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates. Bank Reconciliation Procedure
ExampleXYZ Company is closing its books and must prepare a bank reconciliation for the following items:
Bank Reconciliation StatementAfter recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month. This statement is used by auditors to perform the company’s year-end auditing. Download the Free TemplateEnter your name and email in the form below and download the free template now! Bank Reconciliation Statement TemplateDownload the free Excel template now to advance your finance knowledge! Video Explanation of Bank ReconciliationBelow is a video explanation of the bank reconciliation concept and procedure, as well as an example to help you have a better grasp of the calculation of cash balance. Related ReadingsThrough financial modeling courses, training, and exercises, anyone in the world can become a great analyst. To keep advancing your career, the additional CFI resources below will be useful:
Which is not a book reconciling items?While some reconciling items necessitate an adjustment to your book balance with journal entries, deposits in transit and outstanding checks do not.
What are the reconciling items on the book side?Reconciling items are the reasons the bank and book balances differ and also may be used to make corrections to any errors in the book balance.. Interest income.. Bank fees.. NSF checks.. Book errors.. Which of the following items are found on a book side of the bank reconciliation?NSF checks appear on the book side of a bank reconciliation. Bank errors would appear on the bank side of the bank reconciliation.
What is not included in bank reconciliation?Interest on deposits credited by the bank but not recorded in the cash book. Interest on investments collected by the bank but not recorded in the cash book.
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