What is Bank Reconciliation Statement?

Bank reconciliation statement consists of records of all deposits, withdrawals as well as financial activities with bank over a specific period of time. It acts as a useful tool for preventing and controlling fraudulent activities.

In this article on what is bank reconciliation statement, we will discuss about the details of this statement.

Table of Contents

• What is a bank reconciliation statement?
• Importance of bank reconciliation statement 
• Steps to prepare reconciliation statement
• Requirement
• Advantages
• Difference between Bank Statement and Bank Reconciliation Statement

What is a Bank Reconciliation Statement?

A bank reconciliation statement refers to the summary of banking and business activities that reconcile the bank account of an entity with its financial records. The bank reconciliation statement outlines withdrawals, deposits, and other activities that affect the bank account for a specific period. It is a useful financial internal control that is used for thwarting fraud. Staff accountants work on reconciling the company’s accounting records as well as bank statements.

ABC Corporation has $4,000 as a balance, according to the passbook, as on 31st March 2021. The balance as per the Cash Book on 31st March 2021 of $4050. Below are the details as follows:

• Cheque worth $400 was deposited but was not collected by the bank.
• Bank charges worth $50 were recorded in the Passbook but were not recorded in Cash Book.
• Cheques worth the amount of $200 were issued but were not presented for the payment.
• Bank interest worth $100 was recorded in the Passbook but was not recorded in the Cash Book.

Uncover the best bank courses for jobs to propel your banking career forward. Complement your banking knowledge with online banking courses.

Importance of Bank Reconciliation Statement

A reconciliation statement helps in identifying the difference between bank balance and book balance for processing corrections. These statements are processed once per month. Let us consider an example to understand what these statements are. 

Bank reconciliation statements help in identifying accounting errors and frauds. If the company’s record mention that payment was collected and deposited, however, in case the bank statement does not show a deposit. This indicates either a mistake or fraud. In case a cheque has been modified, it helps in detecting fraud, which helps in taking appropriate measures for interrupting suspicious activities. 

Explore accounting courses

Steps To Prepare Reconciliation Statement

To reconcile your bank records and business, you must have the access to your company ledger as well as your current and previous bank statements.

• While doing reconciliation every month, do remember that the starting balance will be the same as final balance of the previous month. 
• Review the recorded deposits, cleared cheques and withdrawls of your ledger against the one listed on your bank statements. Ensure every amount matches up and do remember to investigate for any discrepancies. Everything that is listed on your bank statement must be included in your records.
• Add any deposits that you have made that have not been cleared into the bank statement balance. Adjusting cash balance ensures that the ledger’s and bank statement’s balance will match. 
• Go through the bank statement for any interest that your account has earned during the month. After that, add it to your reconciliation statement and deduct any penalties or fees that the bank assesses but your ledger does not list down.
• After the review of all deposits and withdrawals, adjust the cash balance and accounting for interest and fees. Overall, the ledger’s ending balance must match the balance of your bank statement. 

Perform a bank reconciliation in Dynamics 365 Business Central

Why is a Reconciliation Statement Prepared?

For a number of reasons, the closing bank balance in the accounts books does not match the actual bank balance as per the bank. Due to this, it is important to know that the bank balance that you assume is in your bank is not available in the bank. To avoid such situations, bank reconciliation statements are prepared. This statement matches bank transactions according to company books with a bank statement to get an accurate bank balance that reflects in books of accounts.

Advantages

The following are the advantages of a Bank Reconciliation Statement:

• Detecting errors: Through bank reconciliation statements, companies get the chance to identify errors in accounting books entries. consignments that are registered in books. 
• Checking payments and receipts: If you have a lot of business, bank reconciliation becomes the best tool for verifying SMEs’ transactions. 
• Prevent losses: Bank reconciliation is important for preventing business losses. It helps in detecting any possible errors and uncollected invoices. This also helps in detecting anything that does not work and areas that generate economic losses.
• Greater control: As you verify the integrity of accounting information, you will be able to understand the exact situation of your company. On keeping the accounts up to date and knowing your balance will help in efficiently distributing resources. 

Difference between Bank Statement and Bank Reconciliation Statement

In summary, a bank statement displays what has happened in the past whereas a bank reconciliation statement helps in understanding the difference between bank balance and recorded balance. Let us understand the detailed difference through the table shown below: