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All of this can be done by using online accounting software like QuickBooks. In case you are not using accounting software, you can use Excel to record such items. From the following particulars of Zen Enterprises, prepare a bank reconciliation statement as of December 31, 2021.

• Enter in the bank reconciliation module the ending cash balance noted on the bank statement.
• Starting with an incorrect opening balance can lead to errors in the reconciliation process.
• Bank reconciliations may not be the most exciting topic, but they are essential for accounting.
• Using the adjustment method, the bank simply creates
  an additional transaction entry to make up for the difference between
  the original transaction amount and the error entry.
• Once you have a solid starting point, look at the reconciling items in last period’s ending balances.

It is up to you, the customer, to reconcile the cash book with the bank statement and report any errors to the bank. Manual bank statement reconciliation involves selecting bank statement lines and system
transactions to be reconciled together. During reconciliation if a system transaction hasn’t
been cleared the reconciliation process clears the transaction first, and then reconciles
it.

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Therefore, you need to pass a journal entry in your books of accounts showcasing the increase in cash balance due to the interest or dividend earned. The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. This reduces your bank balance as reflected in your bank statement. It is important to note that such charges are not recorded by you as a business till the time your bank provides you with the bank statement at the end of every month. The bank balance showcased in the passbook or the bank statement must match the balance reflected in the cash book of the customer.

It’s essential to ensure that the starting balance is accurate before beginning the reconciliation process. Once the balances are equal, businesses need to prepare journal entries for the adjustments to the balance per books. In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side. The bank sends the account statement to its customers every month or at regular intervals. The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account.

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One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts. Or there may be a delay when transferring money from one account to another. Or you could have written a NSF check (not sufficient funds) and recorded the amount normally in your books, without realizing there wasn’t insufficient balance and the check bounced. We’ll go over each step of the bank reconciliation process in more detail, but first—are your books up to date? If you’ve fallen behind on your bookkeeping, use our catch up bookkeeping guide to get back on track (or hire us to do your catch up bookkeeping for you).

What Is a Bank Reconciliation Statement?

Journal entries, also known as the original book of entries, refer to the process of recording transactions as debits and credits. Once the journal entries are recorded, the general ledger is prepared. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook.

Adjust the internal records:

This is because when you deposit a cheque in your bank account, you consider that the cheque has been cleared by the bank. As a result, the balance as per the bank statement is lower than the balance as per the cash book. Such a difference needs to be adjusted in your cash book before preparing the bank reconciliation statement.

Step 1. Choose Your Method for Reconciliation

In this way, the number of items that cause the difference between the passbook and the cash book balance gets reduced. Furthermore, it gets easier to ascertain the correct amount of balance at the bank in the balance sheet. Reconciliation ensures that accounting records are accurate, by detecting bookkeeping errors and fraudulent transactions. The differences may sometimes be acceptable due to the timing of payments and deposits, but any unexplained differences may point to potential theft or misuse of funds. It’s extremely important to have a process of regularly reconciling your bank accounts. This improves your internal controls and helps you lock down cleared transactions.

Cash management software allows businesses to gather real-time cash positions across the organization, helping to make better business decisions based on accurate data. Standardizing the process with a set of steps to follow for reconciliation can make the process more organized and save time. Companies can designate several types of liabilities in accounting individuals to handle certain aspects of bank reconciliation, and they can complete reconciliations in a variety of ways. The basic sequence, of preparing a bank reconciliation, consists of the following eight steps. After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same.