Bank reconciliation

Bank reconciliation is the process of reconciling the balance in the accounting/cash/bank ledger with the bank statement. In simple words, we compare transactions in the bank statement with accounting records. So, if we can see that the total balance of the bank/cash ledger is the same as the closing balance of the bank statement, it means we are good to go, and all transactions of the bank were successfully recorded in the accounting record.

Hence, this process is about ensuring each transaction in the bank statement is recorded in the accounting record. It helps ensure the completion of the accounting record.

Sometimes, the cash/bank balance may not match the bank statement, which can be due to adjusting items. These adjustments can be posted in the accounting record to ensure the total balance in the accounting record is reconciled with the bank statement.

Adjusting items include uncredited checks, unpresented checks, bank charges etc.

Uncredited checks– These are the checks that were not credited in the bank statement. These checks remain undeposited or uncredited to the bank. It can be a check that you have received from a customer and posted in the accounting record. However, the bank did not credit this balance in their record. Hence, it’s called an uncredited check/lodgment.

Simply put, this check was received from your customer but not credited to your bank statement. 

Unpresented checks– These are the checks that were not presented in the bank by your vendors or related stakeholders. You’ve already deducted this amount from your accounting records. However, the bank statement does not show it. This can be due to several reasons: your customer did not deposit the check in the bank, or the bank is taking time to clear the payment. Hence, it was not reflected in your bank statement. So, this check needs to be adjusted in your bank reconciliation statement.   

Financial charges– Generally, financial charges are recorded once a bank statement is received. So, it’s often adjusting bank transactions in the bank reconciliation process. 

Bank reconciliation in the accounting software

Reconciling a bank in accounting software is comparatively easy and less time-consuming. The bank module automatically syncs bank transactions in the accounting software. So, an accountant is required to ensure each transaction is categorized in the appropriate chart of accounts.

To close the accounting period or reconcile the bank, you just need to enter the closing balance of the bank statement and the date of closing. After entering this date, the accounting software screen shows all bank transactions already categorized in the accounting software.

Further, if there are any adjusting items, these can be adjusted to ensure the bank balance is the same as the accounting record. So, once it shows no difference between the bank balance and the bank statement, we are good to go.

Conclusion

Bank reconciliation is the process of comparing transactions in the bank statement with the accounting record. The total closing balance for the bank statement should be the same as the total balance in the accounting books.

However, there are often adjusting items that need to be considered while reconciling the bank.

Adjusting items include uncredited checks, unpresented checks, financial charges etc.