As a result, there is always a time lag between recording entries in the two books, namely the cash book and the bank statement or bank passbook. Even if the statement is prepared between the two dates, bank reconciliation there will be a difference. As with deposits, take time to compare your personal records to the bank statement to ensure that every withdrawal, big or small, is accounted for on both records.
However, the transactions that the bank is aware of but the company is not must be journalized in the entity’s records. Another possibility that may be causing problems is that the dates covered by the bank statement have changed, so that some items are included or excluded. This situation should only arise if someone at the company requested the bank to alter the closing date for the company’s bank account. If there is so little activity in a bank account that there really is no need for a periodic bank reconciliation, you should question why the account even exists. It may be better to terminate the account and roll any residual funds into a more active account.
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The business needs to identify the reasons for the discrepancy and reconcile the differences. This is done to confirm every item is accounted for and the ending balances match. Bank errors are mistakes made by the bank while creating the bank statement. Common errors include entering an incorrect amount or omitting an amount from the bank statement. Compare the cash account’s general ledger to the bank statement to spot the errors. After adjusting the balance as per the cash book, make sure that you record all adjustments in your company’s general ledger accounts.
Such a time lag is responsible for the differences that arise in your cash book balance and your passbook balance. Whereas, credit balance as the cash book indicates bank overdraft or the excess amount withdrawn from your bank account over the amount deposited. If you want to prepare a bank reconciliation statement using either of these approaches, you can take balance as per the cash book or balance as per the passbook as your starting point.
Adjust the Bank Statements
Therefore, you need to pass a journal entry in your books of accounts showcasing the increase in cash balance due to the interest or dividend earned. In order to prepare a bank reconciliation statement, you need to obtain the current as well as the previous month’s bank statements and the cash book. As mentioned above, the process of comparing your cash book details with the records of your business’ bank transactions as recorded by the bank is known as bank reconciliation.
If you don’t know what is going in and out of your bank account and how your bank balance fluctuates, you could end up missing vital information. During the bank reconciliation process, you’ll compare your bank statements to your business’s financial records. You’ll note any differences between your business’s cash records and your bank’s records, then adjust your internal records to ensure their accuracy. At the end of the process, both your bank account and general ledger (GL) should match, and any differences between the two records should be resolved (or reconciled). Therefore, the bank reconciliation process should be carried out at regular intervals for all of your bank accounts.
