Reconciling Differences Between Bank Statements and Business Cash Balance Show
Does your bank statement accurately report your businesses cash balance? Probably not! Oftentimes, there is a difference in the amount of cash reported on the balance sheet and the actual balance in the business’ bank account for that same period. This difference is not a mistake: it simply shows the delay between when your business remits payments and when they are cleared by the bank. In this article, we discuss how to reconcile these discrepancies both manually and through accounting software. WHY RECONCILE?Reconciling your business’ bank account on a monthly basis is beneficial in two ways:
HOW TO RECONCILE MANUALLYWhile most accounting software will assist the user in reconciling the bank statement, it is essential to understand the bank reconciliation and complete it manually if necessary. Start with the bank balance at the beginning of the period you would like to reconcile. Then, add all deposits that have cleared the bank, and lastly, subtract all the payments. The final amount should match the bank balance at the end of the period. You might notice that some deposits made closer to the end of the period might not clear the bank and will remain outstanding. These should be added to the overall bank balance at the end of the period. Likewise, other payments, especially checks issued at the end of the period, might not clear the bank and will reduce the cash balance for the period. To account for this, all outstanding payments need to be reduced from the bank balance at the end of the period. The ending total represents the actual amount of cash available in the bank account. If all transactions are correctly recorded and the account is reconciled appropriately, then the reconciled cash balance should match the amount of cash reported in the general ledger. How to reconcile using accounting softwareIf you’re performing the bank reconciliation in an accounting software, begin the bank reconciliation by entering the bank balance at the end of the period, as well as the period end date. Also, be sure your beginning balance matches last period’s ending balance. Next, select all deposits and withdrawals reflected on the bank statement. Be sure to document transactions that appear on the statement but are missing in accounting software. The difference between the reconciled bank balance and the balance on the statement should be zero. Do not finalize the reconciliation until the difference is eliminated. This difference between the reconciled account balance and bank statement shows either transactions that did not clear the bank account but were marked as cleared, or vice versa, cleared transactions that were not checked off. If such a difference exists, compare the marked transactions in the reconciliation to the bank statement. It is a best practice to record bank transactions and check them off on the reconciliation the same way they would appear on the bank statement. As you reconcile the account, keep an eye out for old payments that have not yet cleared the bank account. Be sure to follow up with the recipients, and either reissue the payment or cancel the payment and reverse the payable and expense. Also, deposits that bounce and do not clear the bank should be reversed in the General Ledger with the cash account credited for the amount of the original deposit. If you’d like to learn more about reconciling your bank accounts or need further assistance reconciling bank accounts and resolving reconciliation discrepancies, reach out to our Accounting Services experts at Sikich today. This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication. SIGN-UP FOR INSIGHTSJoin 14,000+ business executives and decision makersUpcoming EventsLatest InsightsAbout The Author Rachel RitenourRachel is a Manager on the firm's Accounting Services team with 18 years of experience in the financial industry, 14 of which are in public accounting. She specializes in outsourced accounting, establishing strong controls and implementing efficient processes for accounting departments for clients in industries including not-for-profit, construction and real estate. What can make the bank statement balance greater than the cash book balance?Some of the reasons for a difference between the balance on the bank statement and the balance on the books include: Outstanding checks. Deposits in transit. Bank service charges and check printing charges.
What causes the balance on the bank statement to differ from the cash balance in the general ledger?Outstanding checks.
These checks are called outstanding checks and cause the bank statement balance to overstate the company's actual cash balance. Since outstanding checks have already been recorded in the company's books as cash disbursements, they must be subtracted from the bank statement balance.
What would cause the balance of cash in the bank statement not to equal the balance of cash in the accounting records?Which of the following items would cause the balance of cash in the bank statement not to equal the balance of cash in the accounting records? Cash receipts by the company that have not been deposited in the bank.
What would cause a bank statement not to agree with cash balance in the accounting records?What would cause a bank statement not to agree with the cash balance in the accounting records? The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's.
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