Preparing A Bank Reconciliation
Bank reconciliation is the process describes the difference between bank balance shown in the business’ bank statement on a specified date. When the company receives its bank statement, the company must verify that the amounts on the bank statement are compatible with the amounts in the company’s cash account in its general ledger and conversely.
Preparing a bank reconciliation report requires the reconciled company record and bank, thus both reports should be compared to find out the differences. The comparison is done by debiting the cash account compare to the credit in bank record in receiving column, cash credit account compared to the debit in bank record as stated in the expenditure column in bank report.
Why is bank reconciliation necessary?
Bank reconciliation is needed to:
- Find out the cash balance difference from the bank record with different cash balances on the books of the company
- Find out the causes of the difference in cash balances on bank and company records
Find out the correct cash balance due to differences in cash balances that occur due to differences in records between banks and companies
Why is there any balance difference between cash record and bank statement?
The differences are caused by:
- The transaction which is recorded as revenue by a company has not been recorded by the bank.
- A transaction that has been recorded as revenue by the bank, has not been recorded by the company.
- Transaction recorded by the bank as expenses has not been recorded by the company.
A bank reconciliation is necessary to monitor the accounting records accuracy and financial statement of the company. It also deals with the internal control regarding company cash and ensures payments have been processed and received cash have been deposited into the bank. To minimize the error occurred, work involved and carry out the reconciliations properly, possibly supported by accounting software, like Zahir Accounting Software.
