Search the bank statement for any interest your account earned during the month, then add it to your reconciliation statement. Also, deduct any penalties or fees the bank assessed that your ledger doesn’t list. Therefore, when your balance as per the cash book does not match with your balance as per the passbook, there are certain adjustments that you have to make in order to balance the two accounts. You need to adjust the closing balance of your bank statement in order to showcase the correct amount of withdrawals or the cheques issued but not yet presented for payment. Such errors are committed while recording the transactions in the cash book.
Further, make sure that the bank’s statement for the current month has also been obtained from the bank. You first need to determine the underlying reasons responsible for the mismatch between balance as per cash book and passbook. Once you have determined the reasons, you need to record such changes in your books of accounts. 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. Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and to enable real-time updates.
Step #3: Work Out the Balance as Per Cash Book Side of the Bank Reconciliation Statement
When you’re performing bank reconciliation, you’re basically following the same process as balancing a checkbook—you’re just doing it on a business-wide scale instead of a personal one. For some entrepreneurs, reconciling bank transactions creates a sense of calm and balance. If you’re in the latter category, it may be time to think about hiring a bookkeeper who will do the reconciling for you. You can do a bank reconciliation when you receive your statement at the end of the month or using your online banking data.
When you’re completing a bank reconciliation, the biggest difference between the bank balance and the G/L balance is outstanding checks. That means your account could quickly become overdrawn, with penalties and fees adding up in a matter of days. This is probably the most important step in the entire bank reconciliation process. If you commonly make deposits into your account, you’ll want to compare your bank account deposit totals to those listed in your general ledger. In this day of electronic banking, many people believe completing a bank reconciliation is no longer necessary.
Why you should reconcile your accounts
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At times, the balance as per the cash book and passbook may differ due to an error committed by either bank or an error in the cash book of your company. However, there may be a situation where the bank credits your business account only when the cheques are actually realised. Whereas, credit balance as the cash book indicates bank overdraft or the excess amount withdrawn from your bank account over the amount deposited.