How to Prepare a Bank Reconciliation: 8 Steps with Pictures

October 13, 20225:46 pm

what is the proper adjusted cash balance per bank?

This allows you to know not only the total amount owed to you by all credit customers, but also the total amount owed by each customer. Are there any special charges made by the bank that you have not recorded in your books? If so, record them now just as you would have if you had written a check for that amount. By the same token, if there are any credits made what is the proper adjusted cash balance per bank? to your account by the bank, those should be recorded as well. Many accounts may have automatic monthly payments set up for certain recurring bills. If you don’t have the payment date for auto payments on your calendar, you may not see the withdrawal until it appears on the monthly bank statement. Post any missing automated debit payments to your cash account.

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This is done by taking into account all the transactions that have occurred until the date preceding the day on which the bank reconciliation statement is prepared. Accounting period, you might observe certain differences between bank statements and ledger accounts. Thus, such debits made by the bank directly from your bank account lead to a difference between the balance as per cash book and the balance as per the passbook. Such a time lag is responsible for the differences that arise in your cash book balance and your passbook balance. After adjusting all the above items, what you get is the adjusted balance as per the cash book. This balance must match the balance as per the passbook. Whereas, credit balance as the cash book indicates bank overdraft or the excess amount withdrawn from your bank account over the amount deposited.

Make Necessary Adjustments in the Balance as per cash book

The bank may send you a bank statement at the end of each month, every week, or even at the end of each day in case of businesses having a huge number of transactions. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook. Therefore, it makes sense to first record these items in the cash book to determine the adjusted balance of the cash book. NSF cheques are an item to be reconciled while preparing the bank reconciliation statement. This is because when you deposit a cheque in your bank account, you consider that the cheque has been cleared by the bank.

Therefore, a $345 debit is made to increase the accounts receivable balance of Hosta, Inc., and a $345 credit is made to decrease cash. Banks use debit memoranda to notify companies about automatic withdrawals, and they use credit memoranda to notify companies about automatic deposits. To the bank, however, a company’s checking account balance is a liability rather than an asset. Therefore, from the bank’s perspective, the terms debit and credit are correctly applied to the memoranda.

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A visitor steals a check from the checkbook and cashes it. Such cheques are the ones that have been issued by your business, but the recipient has not presented them to the bank for the collection of payment. You will know about such information only when you receive the bank statement at the end of the month.

The difference between these two balances is due to reconciling items. Finally, match all the other items reflected in your company’s bank statement with the items showcased in the company’s cash book. In case there are any differences between the two balances due to bank fees, dishonored due to insufficient funds, etc, record such differences in the bank reconciliation statement. Next, match the amount of each and every cheque paid or cleared by your bank with each and every amount reflected in your company’s cash book. In case there are any differences, due to outstanding cheques or any other errors, specify the differences in your company’s bank reconciliation statement. Reconciling bank statements with cash book balances helps you, as a business, to know the underlying causes that lead to such differences. Banks often require customers to pay monthly account fees, check printing fees, safe‐deposit box rental fees, and other fees.

Errors Made by Your Business or your Bank

On the cash book side of the bank rec, adjusting journal entries need to be posted into the general ledger cash account for each of the reconciling items. Notice that there are no journal entries posted for the bank statement adjustments because those are only used in the reconciliation process to calculate at the “correct” adjusted cash balance. Every check amount on the bank statement must be compared to the check amounts in the company’s general ledger Cash account. Any differences, such as the company’s outstanding checks and errors, will become part of the adjustments listed on the bank reconciliation. Referred to as the “one-write” system, this time-saver also reduces the chance of posting errors. In your cash disbursements journal, mark each check that cleared the bank statement this month. On your bank reconciliation, list all checks from the cash disbursements journal that did not clear.

But this is not the case as the bank does not clear an NFS cheque. 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.

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