Bank Reconciliation Statement
A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. A bank reconciliation statement summarizes banking and business activity, reconciling an entity’s bank account with its financial records. Bank reconciliation statements confirm that payments have been processed and cash collections have been deposited into a bank account. All fees charged on an account by a bank must be accounted for on a reconciliation statement. After all adjustments, the balance on a bank reconciliation statement should equal the ending balance of the bank account. Completing a bank reconciliation statement requires using both the current and the previous month's statements, including the closing balance of the account. A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. When preparing the Oct. 31 bank reconciliation statement, the check mailed the previous day is unlikely to have been cashed, so the accountant deducts the amount from the bank balance. The accountant typically prepares the bank reconciliation statement using all transactions through the previous day, as transactions may still be occurring on the actual statement date.
What Is a Bank Reconciliation Statement?
A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. The statement outlines the deposits, withdrawals, and other activities affecting a bank account for a specific period. A bank reconciliation statement is a useful financial internal control tool used to thwart fraud.
Understanding the Bank Reconciliation Statement
Bank reconciliation statements ensure payments have been processed and cash collections have been deposited into the bank. The reconciliation statement helps identify differences between the bank balance and book balance, in order to process necessary adjustments or corrections. An accountant typically processes reconciliation statements once a month.
Required Information to Create Bank Reconciliation Statement
Completing a bank reconciliation statement requires using both the current and the previous month's statements, including the closing balance of the account. The accountant typically prepares the bank reconciliation statement using all transactions through the previous day, as transactions may still be occurring on the actual statement date.
All deposits and withdrawals posted to an account must be used to prepare a reconciliation statement.
Bank Reconciling Statement
The accountant adjusts the ending balance of the bank statement to reflect outstanding checks or withdrawals. These are transactions in which payment is en route but the cash has not yet been accepted by the recipient. An example is a check mailed on Oct. 30. When preparing the Oct. 31 bank reconciliation statement, the check mailed the previous day is unlikely to have been cashed, so the accountant deducts the amount from the bank balance. There may also be collected payments that have not yet been processed by the bank, which requires a positive adjustment.
Adjusting Balance per Books
The balance of the cash account in an entity's financial records may require adjusting as well. For instance, a bank may charge a fee for having the account open. The bank typically withdraws and processes the fees automatically from the bank account. Therefore, when preparing a bank reconciliation statement, any fees taken from the account must be accounted for by preparing a journal entry.
Another item that requires an adjustment is interest earned. Interest is automatically deposited into a bank account after a certain period of time. Thus, the accountant may need to prepare an entry that increases the cash currently shown in the financial records. After all, adjustments are made to the books, the balance should equal the ending balance of the bank account. If the figures are equal, a successful bank reconciliation statement has been prepared.
Related terms:
Account Reconcilement
Account reconcilement is the process of confirming that two separate records of transactions in an account are equal. read more
Bank Statement
A bank statement is a record, typically sent to the account holder every month, summarizing all transactions in an account during a set time period. read more
Book Balance
Book balance is an accounting record of a company's cash balance reflecting all transactions and must be reconciled with the bank account balance. read more
Cash Account
A cash account with a brokerage requires that all transactions be payable with funds available in the account at the time of settlement. read more
Checking Account
A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more
Deposit in Transit
A deposit in transit is money that has been received by a company and sent to the bank, but it has yet to be processed and posted to the bank account. read more
Fraud
Fraud, in a general sense, is purposeful deceit designed to provide the perpetrator with unlawful gain or to deny a right to a victim. read more
Outstanding Check
An outstanding check draws on the funds in an individual’s or business’ bank account but has not yet been cashed or deposited by the payee. read more
Petty Cash
Petty cash is a small amount of cash on hand used for paying expenses too small to merit writing a check. Learn how to balance petty cash in accounting. read more
Reconciliation
Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations. read more