Introduction to Bank Reconciliation

Introduction to Bank Reconciliation

Every business has a general ledger: Cash at Bank account in the Balance Sheet that records every transaction that involves its current account. The bank also records the company’s current account which processes the company’s deposits, cheques, service fee and other items. At the end of the month, a bank statement will be sent to the company. The bank statements record the activities of the bank account including the balance of the bank account.

When receiving its bank statement, the company ought to confirm that the amounts of the company’s Cash at Bank are compatible with the amounts on the bank account. This procedure of verifying the amounts is known as bank statement reconciliation and this is done monthly by most bookkeeping service in Johor Bahru. The advantage of bank reconciliation is that the amount of Cash recorded by the company is compatible with the quantity of money displayed in the bank’s records.

It could be time-consuming to reconcile the amounts on the bank statement with the amounts of the company’s books because companies make many deposits and write numerous cheques every month (Also see How Accounting Service Helps Small Business).

Bank reconciliation is a complicated process because items that appear on the business’s Cash at Bank in a particular month but appear on the bank statement in another different month.

For instance, cheques that are written at the end of March are recorded instantly on the company’s book, but in early April, cheques only cleared on the bank account. Additionally, the bank does not notify the amount deducted from the company’s bank account. For example, an amount of bank service charge is subtracted on the bank statement on May 31; the company would only know when receiving the bank statement in early June.

Through these two examples, we can know why there would be differences in the balance on the company’s Cash at Bank and bank statement. It is not impossible that neither balance is the actual balance. Hence, both balances are required adjustment to show the actual amount of money.

In short, bank reconciliation is to adjust the balance per books to the actual balance and also the balance per bank to the same actual balance. You may seek guidance from any accounting firm in Johor Bahru for more information about bank reconciliation.

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