Official Bank Reconciliation Guide To Better Cash Balances In The Bank

bank-reconciliation-terms

In any company, bank reconciliation is an important part of the overall accounting process. For companies like Intuit stock, there are thousands of checks being processed every month. Even if you don’t have a formal accounting departments, a general manager or business owner should be responsible for doing proper reconciliation of bank statements. Especially in small businesses, business owners should take bank reconciliation very seriously. To learn more about the finance process, we have covered everything you need to know here.

What Is Bank Reconciliation?

Also known as bank statement reconciliation, this is the process of confirming the transactions in your company bank statement against your own accounting books or general ledger. Bank reconciliation ensures that there are no errors or deficits in the cash reporting by the banking provider or your accounting ledgers. In short, bank reconciliation confirms cash between the business and the bank.

Why Is Reconciliation Important?

First and foremost, reconciling bank statements with cash reporting is important to check for errors. Moreover, it is used as a control mechanism to ensure that their is no operating irregularities. These controls are an important tool to protect from theft or unauthorized bank transactions. Since cash is one of the most important aspects of a business, the process to control cash is equally as important.

How Frequently To Reconcile Statements?

When it comes to checking on you cash, some accounting experts might say there is no such thing as too frequent. However, if you bank only issues your statement once per month, then a monthly review would be ideal. For business owners who are extremely busy, this process can be managed by an accountant or bookkeeper. This way, it bank balances and statements can be reconciled monthly or quarterly. Or, if you would like to really stay on top of your cash transactions, you can implement accounting software to monitor your cash balances daily too.

Bank Reconciliation Terms

There are a few banking terms that are helpful when balancing the difference between bank balances and a company’s cash balance. These terms account for uncleared checks, deposits in transit and bank fees. Quite simply, these terms are known as “Deposits in Transit” and “Checks Outstanding.” Using these terms, you should be able to balance your traditional or virtual bank account and company statements. However, you will still need to include service charges, interest income and NSF checks that may have occurred during the month.

Steps To Reconcile Bank Statements

If you would like to know how to do bank reconciliation, you will be happy to know it is a simple process. Now that you are familiar with the basic terminology, you are ready to begin. First, start by examining your bank statement balance. Next, compare the bank transactions with your company cash ledger. If you are not using a bank reconciliation template, note down all the differences, keeping a running total of each cash balance. Finally, adjust for any discrepancies and confirm that the two balances are matching.

As we have covered, the bank reconciliation process is highly valuable to any company. Business owners should use this process to control their cash and ensure the proper amount of cash is in the bank. By doing this regularly, businesses can minimize financial risks and maximize its opportunity for growth.

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