The next time you receive an account statement from your bank, pay attention to the reconciliation page, generally at the end of the statement. There you would see how much the bank charges for its services, as well as how it calculates the fees. Companies also spend time reviewing their cash balances to ensure that book amounts reconcile with bank balances.
Bank reconciliation is a process in which you compare your personal records with transactions indicated on your bank statement. Make sure the period under review is the same. For example, if your bank statement relates to June, your personal records must cover the same month.
As a bank account holder, you must reconcile your records with your bank balances to identify errors or omissions in records. These may result from bank fees not recorded in the account holder’s records and outstanding checks that have not cleared the bank.
Accountants record adjusting entries to ensure the account holder’s records match the bank’s data. They do so by debiting and crediting financial accounts, such as assets, liabilities and expenses. For example, to record a bank fee in an account holder’s books, debit the bank fee account and credit the cash account. This entry reduces cash in your account; the accounting concepts of debit and credit are different from the banking terminology.
Regularly reconciling your bank statements can prove useful, especially if you engage in several transactions over a month and the bank has different fees for each transaction type. For example, your financial institution may charge different amounts for such transactions as domestic wires, international transfers, notices of insufficient funds and overdraft coverage. If you don’t have sufficient knowledge of bank reconciliation rules, always seek the guidance of a professional. Experts such as certified public accountants and financial planners may help you reconcile your bank statements and properly record transactions in your personal books.
Your bank sends you a statement on Feb. 2, advising you that your account balance was $9,950 as of Jan. 31. The bank’s amount is different from the balance of $9,500 you’re showing in your personal books. You call your account representative to discuss the matter, and the representative sends you a list of items that may justify the discrepancy. In your books, you have two checks amounting to $500 that were issued on Jan. 29 and didn’t clear the bank at the statement date. The representative notifies you that total fees for January amounted to $50. To reconcile the bank’s statement amount, you would subtract from $9,500 the outstanding checks totaling $500 to get a final balance of $9,450. To reconcile the cash balance in your books, you would subtract the $50 fee from $9,500 to get a final balance of $9,450. Now your personal books reconcile with your bank records.
- University of Alaska Anchorage; Reporting and Analyzing Cash and Internal Controls; Dr. Fred Barbee
- Harper College; Accounting Cash and Internal Controls; July 2008
- Austin Community College: Adjusting Entries
- The Free Dictionary by Farlex: Bank Reconciliation
- AccountingTools. "Bank Reconciliation." Accessed Feb. 6, 2020.
- New York State Office of Mental Health. "Top Ten Internal Controls to Prevent and Detect Fraud." Accessed Feb. 6, 2020.
- Office of Washington State Auditor. "Positive Pay Can Help Protect Your Organization From Check Fraud." Accessed Feb. 6, 2020.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.