Checking the Account Balance

Checking the Account Balance

For proper cash flow management, a bank reconciliation is an essential instrument. The term "reconcile" refers to the operation of reconciling the cash transactions recorded in your books with those listed on your bank statement.

You can keep track of your financial transactions by using this method. Reconciling your finances also aids in spotting instances of fraud and other unreported monetary dealings. Therefore, you must be sure to reconcile your bank account after obtaining your bank statement.

Making Changes to a Bank Statement's Total

Verify the sum total of your checking account. Please get your hands on your most recent bank statement right now. Shortly after the last day of the month, if you have internet banking, you can view your bank statement. Don't forget to jot down the ending balance when you get your statement. The task at hand is to straighten out any discrepancies between the cash on hand and the books. This should be done by comparing your records to your bank statement to ensure accuracy.

Debits indicate payments made out of the account and credits indicate payments made into the account on a bank statement. When compared to how these terms are really used in the accounting industry, their definitions look very different.

A "reconciling item" is something that only appears in one location (either on your bank statement or in your cash account). Your mission is to figure out why the two files don't match and fix them so that they do.

You can view a bank reconciliation as a formula. To calculate your cash balance, add or subtract the items you're reconciling to or from your cash account balance (bank statement balance). Your bank reconciliation is complete after you have this formula in balance.

Book value is the same as your cash account balance (or balance per book). Your account balance is the amount shown on your bank statement. Reconciling items account for the discrepancy between the two totals.

Accumulate unposted deposit funds and add them to the current balance (also known as "deposits in transit"). You should be aware that there could be a lag time between when you deposit money and when that money appears in your bank account. Money deposited at an ATM or bank branch may be available sooner. Deposits sent through the mail may cause a longer wait time.

The money is added to your checking account instantly. Because the bank was slow to post the deposit, you now have an item to reconcile.

Crediting (or increasing) the bank statement balance would be necessary to reflect the actual amount of money available.

Let's pretend for a moment that you have $5,000 in your checking account. On July 31st, you deposited $1,500. A total of $1,500 was deposited into your account in July, but it doesn't appear on your bank statement. An additional $1,500 would be added to the existing bank balance on the statement, bringing the total to $6,500, which would satisfy the need for a balance reconciliation. There was a discrepancy that needed to be settled, and the $1,500 took care of that.

Reduce the total amount of all checks that are now outstanding. Once posted to the bank's records, a check is considered cleared. To put it simply, an outstanding check is one that has not yet been cleared by the bank. This typically happens on the last day or two of the month when people write checks. Bank balances must be adjusted downward to account for overdue checks.

Let's say the current balance is $5,000. You must boost the bank balance by $1,500 to fully account for deposits in transit. As a result of your transaction, the new total in the bank account is $6,500 ($5,000 plus $1,500).

Imagine there are five outstanding checks at the end of the month, for a total of three thousand dollars. The $3000 adjustment to the bank balance is made so that the bank can cover any checks that have yet to clear. With this transaction, your account balance is revised to $3,500 from $6,500 (after subtracting $3,000).

Check the statement from the previous month to see if any checks from that month haven't cleared yet. It is the responsibility of the person who is supposed to receive payment (the payee) to find out why a check has not cleared. After a month, there's a chance the check may be forgotten about.

Examine the processed transaction for processing mistakes committed by the bank. Accounting for the reconciliation of a company's cash account is recorded in the general ledger. The company's general ledger cash account should be checked against the bank statement for accuracy. There could be a deal that you just don't understand. You should talk to your bank if you have any questions concerning a personal or corporate banking transaction.

Transposing, or reversing, the digits on a deposit amount or check is one source of potential confusion. A deposit of $750 could be misread by the bank as $570. An inaccuracy of this magnitude ($180) is always a multiple of nine. Get in touch with your bank and have them make the necessary adjustment to take care of the reconciling item for you.

If the bank has ruled out an error as the cause of the discrepancy, then it may be indicative of fraudulent conduct. Imagine a dental office run by a secretary. If the secretary is out to lunch, you can find the checkbook on the front desk. A guest cashed a check they stole from the checkbook.

After the check clears the bank, the account has been compromised. In addition, let's say the dentist reads the bank statement and finds the cashed check. Dentist contacts bank and has money returned to account.Because of that, the reconciling element is no longer present.

Modifying the Trial Balance

Check to see if the funds have cleared. All of the company's checks and deposits for the month should be itemized on a report that is printed after the bank statement is received. Reports can be generated by the company's accounting software.

Examining your checkbook and your deposit slips is an important part of balancing your personal bank account. The reports should be printed, and the cash register and deposit slips should be reviewed.

Go over each check you've written in the order in which it was written. 

Check to see if the funds from the check showed up on your bank statement. Mark your books as "check cleared" if that's the case. Either accounting software or a handwritten report can be used to record the check's clearance.

Examine last month's checkbook as well. Check your bank statement for the current month to see if the payments were deposited. Note the check's success in clearing if applicable. You should get in touch with the payee if the check has not cleared. The check could be misplaced.

When you're done looking over everything, make a note of all the checks that haven't cleared the bank yet. Details like the check number, amount, and payee must be included on that list.

The sum is the total of all the checks you've written this month. Uncashed checks are an account-balancing item.

Verify that the funds have been properly deposited. A monthly deposit report should be printed by every company. All deposit slips should be audited by the company as well. A record of deposits as well as physical deposit slips are required for personal checking account reconciliation.

Check the deposits that were recorded by the bank during the month when you receive your statement.

Look over your checkbook deposits in chronological order. Verify on the bank statement that the funds have been deposited.

It's also a good idea to check the status of any deposits that were still processing at the end of the previous month. Verify that the monthly bank statement reflects the aforementioned deposits.

When you're done looking things over, make a list of all the deposits that haven't shown up in the bank yet. The amount and time of each deposit should be included on that list.

Your monthly deposit total is reflected in this sum. A reconciling item is money deposited but not yet received.

Take into account the deductions and fees for using a service. All fees associated with using a bank must first be subtracted from available funds. A monthly service charge is one example of a fee that certain banks impose. Overdraft fees are another possible consequence of going over your account limit. Most of these fees will show up on your bank statement, but your cash account may not be updated until the end of the month. Accounts receivable must be revised to reflect interest earned on the bank balance.

Example: A $10 service charge appears on the bank statement; this amount must be deducted from available funds. It is a reconciling item until it is recorded in the cash books.

Include any accrued interest in your new total. If your bank account has accrued interest, you won't find out about it until you receive your monthly statement. The amount of interest credited to your account by the bank should be added to the current balance. Interest accrues, but it isn't recorded in the books, so it's a reconciling item until then.

Take into account any recurring charges. There may be a system in place whereby certain monthly bills are deducted automatically from a number of different accounts. It's possible to miss a withdrawal from your bank account if you don't mark the payment date for automatic payments on your calendar. Examine your recent bank statement. Deposit into the bank account any missed direct debit payments. An offending reconciling item will be eliminated.

NSF fees should be deducted. If your bank statement shows that a check you wrote this month bounced due to "insufficient funds," the money was not deposited into your account. To settle the check, deduct the amount from your cash on hand. Another cost to deduct would be any fees assessed by the bank for depositing a faulty check. If you overdraw your account, you will incur additional fees.

Verify that you haven't made any mistakes this past month. Checking your cash account transactions against the bank's records will help you spot any mistakes. Cash records could be inaccurate if, for instance, the wrong amount was entered for a check or deposit. When those mistakes are made, a balancing item is produced.

There is probably a transposition problem if your total is out by a multiple of nine, such as $270 or $630. This indicates that you made a deposit with the digits turned around. Checks for $310 are frequently written; however, the money is only accounted for as $130 in the books.

You should be left with a final cash account balance minus reconciling items, which totals the balance per the bank statement. If the result of that calculation does not add up to 1, check your calculations until you have accounted for every reconciling factor.