How to Perform a Bank Reconciliation Step-by-Step: Methods and Template

Step by step

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   1. Understand Bank Reconciliation

   Bank reconciliation is the process of comparing your company's cash account balance with the balance on your bank statement. Its purpose is to identify and explain any differences between the two balances, ensuring your company's accounting records are accurate.

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   2. Identify Common Discrepancies

   Differences between bank and book balances often arise due to timing or errors. Common reasons include: checks in transit (issued by the company but not yet cleared by the bank), deposits in transit (recorded by the company but not yet credited by the bank), bank service charges, interest earned, NSF (non-sufficient funds) checks, and errors made by either the bank or the company.

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   3. Gather Necessary Information

   To begin the reconciliation, collect your company's cash ledger (or detailed accounting records) and the bank statement for the specific period you are reconciling. Ensure you have access to all supporting documents, such as deposit slips and check stubs.

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   4. Reconcile the Bank Statement Balance

   Start with the ending balance shown on the bank statement. To this balance, add any deposits in transit (deposits the company has recorded but the bank has not yet credited). Then, subtract any outstanding checks (checks the company has issued but the bank has not yet cleared). The result is the adjusted bank balance.

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   5. Reconcile the Company's Cash Ledger Balance

   Now, take the ending balance from your company's cash ledger. To this balance, add any bank credits not yet recorded by the company (e.g., interest earned or direct collections made by the bank on the company's behalf). Subtract any bank debits not yet recorded by the company (e.g., bank service charges, NSF checks, or automatic payments). The result is the adjusted book balance.

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   6. Compare Adjusted Balances

   After making all necessary adjustments to both the bank statement balance and the company's cash ledger balance, the two adjusted balances should match. If they match, the reconciliation is successful.

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   7. Investigate Remaining Differences

   If the adjusted balances still don't match, you need to meticulously review all transactions again. Look for transposition errors, omitted entries, duplicates, or incorrect amounts. A common method is to compare each transaction on the bank statement with the ledger, ticking off matching items to quickly identify discrepancies.

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   8. Consider Automation with The Eye's Reconciliations

   While manual reconciliation using spreadsheets can work for small volumes, it becomes time-consuming, tedious, and prone to errors as your business grows. The Eye's Reconciliations feature automates this process, matching transactions quickly and accurately, and flagging exceptions for review, allowing your team to focus on resolving issues rather than manual data entry.