ACCOUNTANCY

What is Bank Reconciliation? Here’s an example and the procedure for making it!

What is bank reconciliation? What are the steps or how to make a complete bank reconciliation report with examples? What is the definition of outstanding checks and deposits in transit? The full discussion will be in the Mekari Journal Blog article.

Bank reconciliation is the process of matching the balances in an entity’s accounting records for cash accounts with the appropriate information on bank statements.

In the process of bank, reconciliation will show all transactions that you have done during the specified period.

If discrepancies are found, the accountant will make an adjusting entry using evidence that is considered valid and also valid.

What is Bank Reconciliation?

Bank reconciliation is an activity to detail the differences between the transaction records owned by the bank as the transaction manager and the records held by the company and the bank in the form of a checking account or commonly called a bank statement.

The purpose of this process is to ascertain the similarities and differences between the two.

Bank reconciliation must be carried out because the information contained in the bank statement is a bank record of all transactions that have had an impact on the company’s bank account for the past month.

Reconciliations should also be completed periodically on all bank accounts, to ensure that the company’s cash records are correct.

It is also used for better control over receipts and payments made in cash.

Why is Bank Reconciliation Necessary?

Every company must have an account in the bank to store their money.

The amount of cash stored in the company is generally only petty cash.

The purpose of opening a company account at a bank is to control the company’s cash in general.

However, companies must have their own records of incoming or outgoing funds, not completely relying on records from banks.

However, discrepancies are often found between company and bank records, due to costs that are not taken into account.

For example, bank administration fees, interest sharing, and others.

A company’s general ledger lists transactions involving checking accounts.

On the other hand, banks also keep records of the company’s checking account when processing checks, deposits, service fees, and other company items.

This bank record lists the activity in the bank account as well as the balance in it.

At the end of each month, banks usually provide this report to the company.

When receiving this report, the company must verify whether the amount on the bank statement matches the amount in the company’s cash account in the general ledger, and vice versa.

This verification process is known as bank reconciliation.

Bank reconciliation is very necessary for companies because it is to know important information such as for example:

  1. The company can find out the amount of difference from the cash balance on the bank statement that is different from the company’s books.
  2. To find out the causes of the difference in cash balances in bank and company records.

When Should You Do a Bank Reconciliation?

A company will reconcile at least once at the end of each month.

This process is carried out immediately after the bank sends the company’s bank statement containing the beginning cash balance, transactions for one month, and the ending cash balance at the bank.

However, it would be better if the company did it every day by accessing information that can be accessed through the bank’s website.

By completing daily bank reconciliations, companies can quickly find problems in their bank accounts, find the source of the problem and find a solution.

If the company finds little activity at the bank and it looks like it doesn’t need a verification process, then this is suspect.

Because it is very unlikely that the company’s ending balance and the bank’s ending balance will be the same.

At any time there are certainly several possible payments, deposits, bank service fees, penalties and other transactions that have not been recorded by the company.

If this happens then it is better to close the account and put the remaining funds into a more active account.

By doing this, it will be easier to invest the remaining funds as well as monitor the investment status.

Components in Bank Reconciliation 

There are several components and examples that appear when performing a bank reconciliation, which is as follows:

  1. A deposit in Transit is cash and/or check that has been received and recorded by a company but has not been recorded in the bank records where the company keeps the funds. If this happens at the end of the month, the deposit will not appear on the bank statement, and therefore becomes a reconciling item in the bank reconciliation. Deposits in the process occur when the data is late in arriving at the bank so it cannot be entered in the records on that day. Another reason is if the company sends a deposit but it is delayed or the company has not sent a deposit to the bank at all.
  2. Outstanding Checks are checks that have been recorded by the company but have not been cashed. If it is not resolved it will not appear on the bank statement.
  3. Non-Sufficient Fund Check (Blank Check) is a check that is not received by the bank because there are insufficient funds in the company account. If this happens, the bank will still issue a debit note with the amount of dishonesty ( dishonored ) and the balance in the account will be reduced. To issue this check, the company will incur a processing fee.

Baca juga: Permudah Rekonsiliasi dengan Aplikasi Pencocokan Transaksi

Procedure for Conducting Reconciliation

The following are the steps to perform the bank reconciliation procedure:

  1. Perform a comparison between the cash balance in the company’s general ledger and the bank statement
  2. Record transactions made by the bank
  3. Perform a search on transactions that are still being processed
  4. Create a reconciliation worksheet and calculate the difference
  5. Search and recheck.

1. Comparing the Cash Balance in the Company Ledger and the Statement of the Bank

Companies that register a checking account at a bank, at the end of each month, of course, get a report in the form of a checking account from the bank concerned.

The account contains various company transactions such as checks, deposits, service fees, and other company goods, as well as the company’s cash balance held in the bank.

This checking account can be used to compare the records in it with the records made in the general ledger by the company.

In this comparison process, it is highly unlikely that the company’s ending balance and the bank’s ending balance will be the same.

This is due to several factors such as recording errors, either by the bank or the company.

Of course, there are several possible payments, deposits, bank service fees, penalties, and other transactions that have not been recorded.

2. Record Transactions Made by Banks

The listed transactions carried out by the bank are transactions that are automatic and easy to track based on the current account.

These transactions are usually in the form of bank service fees and interest income from bank accounts.

One of the procedures for bank reconciliation is to first record these transactions into the company’s general ledger, then proceed to the next step.

3. Search for Transactions Still in Process

As explained in the first procedure, it is very unlikely that the company’s ending balance and the bank’s ending balance are at the same nominal value.

This was caused by recording errors from both the company and the bank.

It can be in the form of a deposit in transit or an outstanding check.

Deposits in transit or deposits in the process are cash and/or checks that have been received and recorded by a company but have not been recorded in the records of the bank where the company keeps the funds.

Deposits in the process occur when the data is late in arriving at the bank so it cannot be entered into the records on that day.

Another cause is if the company sends a deposit but it is delayed or the company has not sent a deposit to the bank at all.

Meanwhile, outstanding checks are checks that have been recorded by the company but have not been cashed.

These two components are the components that cause the biggest difference in the nominal cash balance.

Therefore, it is necessary to conduct a search that is continued by contacting the parties related to the transaction.

4. Create a Bank Reconciliation Worksheet and Calculate the Difference

The next step in the bank reconciliation procedure is to create a bank reconciliation worksheet.

This worksheet will later be used as a forum for calculating all recorded transactions.

After the calculation, the actual difference will be found between the balance in the bank account and the balance recorded in the company’s general ledger.

If there is no difference in the nominal balance, then the bank reconciliation process has been completed.

However, if there is still a difference between the two, it is necessary to proceed to the next stage.

5. Tracing and Rechecking

This stage is performed when there is a nominal difference between the balance in the company’s general ledger and the bank account.

At this stage, a search and re-check of the cause of the problem are carried out.

If the nominal difference is less than one million, it is possible that an error occurred when entering numbers in the records made by the accountant.

However, if the value of the difference is more than one million, it is possible that there is a recording of a transaction that has not been inputted or that a transaction has been recorded twice or there has been a transaction cancellation and a reversing journal has not been recorded.

Example of a Bank Reconciliation Using Journal Accounting Software

Through Cashlink Transfer in the Journal, you can make money transfers for business activities directly in the application.

All transactions will be automatically recorded in your bank reconciliation statement.

In addition, this feature is also equipped with an additional function for duplicating transfers, so that repeated transfers for your routine activities can be carried out more quickly and practically.

To view an example of a bank reconciliation report:

    1. Click the Reports menu.
    2. On the Bank tab, click “Reconciliation Report”.
    3. Enter the date of the report and select the Cash & Bank account you want to display.
    4. When finished, click “Filters”.
    5. After filtering, you can export this report by clicking the “Export” button and selecting the desired file format. The available formats are PDF, Excel, or CSV.
    6. If in PDF form, it will look like this.

Conclusion

Once you understand what a bank reconciliation is, you need to implement the process.

The bank reconciliation process is not a difficult thing.

However, it takes precision and accuracy so that nothing is missed from the examination.

And of course, this long process will take a lot of time.

However, now you don’t have to bother with bank reconciliation anymore.

Journal accounting software with its Reconciliation feature will make it easier for you to match the outgoing and incoming cash with the outgoing/incoming cash in your bank account.

Through the Cash Link feature, the Journal helps your company’s reconciliation (matching) process in just 2  steps, namely automatic withdrawal of mutations and immediately forwarded with automatic matching ( smart reconciliation ).

This of course makes it easier and faster for the processes that run in your company/business.

Only by connecting your bank account with the Journal, do you no longer need to bother doing the reconciliation process manually.

Through the explanation above, do you understand what an example of a bank reconciliation is, as well as the meaning of outstanding check and deposit in transit?

Again bank reconciliation is the process of matching the balances in the entity’s accounting records for cash accounts with the appropriate information on the bank statements.

Through the Journal the bank reconciliation process can be done automatically.

Hopefully, the information above helps, also follow the Journal’s social media for information on the business, finance, and accounting.

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