Bank Reconciliation Definition & Example of Bank Reconciliation

If an error is identified during the reconciliation process, it’s not always at the company’s end. Banks can also make errors, and if the mistake can’t be identified, contact the bank. Reconciling account balances is essential for any small business or established enterprise.

With built-in workflows and audit trails, teams close faster with fewer follow-ups. Spending hours cleaning up exceptions, chasing unmatched items and still relying on spreadsheets and rule-based tools means businesses are still firefighting while their legacy systems hold bank reconciliation statements them back. Discover the financial impact of automation on accounting accuracy and operational efficiency.

For example, if a business identifies any suspicious activity or unidentifiable transactions, it’s essential to prepare a bank reconciliation immediately. Similarly, if customer payment checks on the balance sheet do not match bank records, a cross-check is necessary. Bank Reconciliation Statements are critical for ensuring the accuracy of financial records and providing an up-to-date view of a company’s cash position. By regularly reconciling the cash book with the bank statement, businesses can detect errors, prevent fraud, and maintain reliable financial reporting. These examples illustrate the importance of systematically identifying and adjusting for discrepancies to achieve accurate reconciliation.

• Here are two examples to reinforce the bank’s use of debit and credit with regards to its customers’ checking accounts.
• Regular bank reconciliation double-checks that all payments have been accurately processed.
• HighRadius is redefining treasury with AI-driven tools like LiveCube for predictive forecasting and no-code scenario building.
• Reconciling bank statements with cash book balances helps your business know the underlying causes of these balance differences.
• Nowadays, all deposits and withdrawals undertaken by a customer are recorded by both the bank and the customer.

However, there’s usually a limited window to report and correct these errors, so they need to be caught early. Bank reconciliations help detect errors, duplications, and discrepancies in financial records. Sometimes there may be errors in your accounting system, while other times there may be bank errors.

There are times when the bank may charge a fee for maintaining your account, which will typically be deducted automatically from your account. Therefore, when preparing a bank reconciliation statement you must account for any fees deducted from your account. Preparing a bank reconciliation statement is done by taking into account all transactions that have occurred up until the date preceding the day the bank reconciliation statement is prepared. There are times when your business will deposit a check or draw a bill of exchange discounted with the bank. These deposited checks or discounted bills of exchange drawn by your business may get dishonored on the date of maturity. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account.

Direct Debits

If your accounting record shows that a check has been issued and your bank statement does not show a corresponding entry for that check, it means that it is an outstanding or unpresented check. All transactions between depositor and bank are entered by both the parties in their records. These records may disagree due to various reasons and show different balances. The purpose of preparing a bank reconciliation statement is to find and understand the reasons of this difference in account balance. An effective bank reconciliation follows a systematic process that ensures accuracy and completeness.

Know that banks might also make errors

Look for discrepancies such as errors in recording transactions, missed entries, or duplicate entries to identify and correct them. This process helps maintain reliable financial data, which is crucial for making informed business decisions and preparing precise financial statements. Manual bank reconciliation processes are quickly becoming obsolete as businesses discover the power of bank statement reconciliation software. Modern platforms use artificial intelligence and machine learning to transform hours of tedious matching work into minutes of automated processing.

Download our data sheet to learn how you can manage complex vendor and customer rebates and commission reporting at scale. Download our data sheet to learn how you can prepare, validate and submit regulatory returns 10x faster with automation. Most businesses use a combination of these types to maintain comprehensive financial accuracy. At Atlar, we help many of our customers to streamline bank reconciliation through full bank-ERP connectivity and automated bank feeds. In fact, Atlar is an official NetSuite partner and offers native integrations with other major ERP systems like Microsoft Dynamics 365 and SAP S/4HANA.

• Keep detailed records of each reconciliation, including adjustments and findings.
• Unauthorized transactions, including fraudulent withdrawals or double payments, can further complicate the reconciliation process and threaten your company’s cash balance.
• When a customer deposits a check in his account, the bank immediately credits his account with the amount of the check deposited.
• As businesses continue to grow and transactions become more complex, the need for accurate and timely bank reconciliations will only intensify.
• HighRadius leverages advanced AI to detect financial anomalies with over 95% accuracy across $10.3T in annual transactions.

As such, exact amounts may not be accurately included on financial statements before the reconciliation process. When the business receives its bank statement, it can use the final amounts of interest and investment income to make adjustments and reconcile its financial statements. Discrepancies in bank reconciliations can arise from data processing errors or delays and unclear fees at the bank. Unpredictable interest income may also be a challenge when calculating financial statements, which can lead to challenges during a bank reconciliation. Compare the business’s financial records to the bank statement to spot the errors.

Teams eliminate time spent reviewing spreadsheets or reclassifying balances manually. Keeping track of the entire reconciliation process is crucial for reporting errors and corrections to the management team later. Documentation also helps non-reconciliation employees cross-check data and refer back to source documents. 10% of all occupational fraud cases in small businesses are due to bank account reconciliation errors. After checking all the critical items, adjust the cash balances to account for all expenses and transactions.