Have you heard the bookkeeping term “Bank reconciliation“? If you’re wondering what it is, this may help you get a better understanding.
A bank reconciliation is the process of comparing and matching figures from the accounting records against those shown on a bank statement. The result is that any transactions in the accounting records not found on the bank statement are said to be outstanding.
A bank reconciliation allows companies or individuals to compare their account records to the bank’s records of their account balance in order to uncover any possible discrepancies.
Such discrepancies could include:
- cheques recorded as a lesser amount than what was presented to the bank
- money received but not lodged
- payments taken from the bank account without the business’s knowledge(eg bank fees)
A bank reconciliation done regularly can reduce the number of errors in an accounts system and make it easier to find missing purchases and sales invoices.
Here’s a simple formula that may help you :
Balance per Bank Records + Deposits in Transit – Outstanding Cheques = Correct cash balance
