Bank Reconciliation Template

What is bank reconciliation?

Bank reconciliation is the process through which a company verifies the accounting entries
made over time.

During the entire year, the company registers its entries in the cashbook, and the bank registers
them in its passbook. At the end of the period, both entries are matched to ensure there is no
differences between the closing account balance. This entire process is called bank account
reconciliation.

Bank account reconciliation is a standard procedure for businesses; therefore, it must be

performed periodically to keep the books updated. There are different ways to carry out bank
account reconciliation: a ready-made bank reconciliation template. Let’s dive deep into how to
do bank account reconciliation and use the Nanonets bank reconciliation template.

What are the different steps involved in bank reconciliation?

Every transaction that takes place in accounting typically contains at least two entries. When
you sell something, you record the transaction, and the buyer adds the item to its assets or
inventories. You will need to examine documents from both sides to complete the bank
reconciliation procedure.

Here are the steps in the bank reconciliation process:

● Get your cashbook and bank statement.

● Ensure that the monthly opening balance is the same for both documents.
● Compare all the entries from both documents. Cross the entries that match and flag the
entries that don’t match.
● Figure out the reason why the entries don’t match. Make necessary corrections.
● Mention the corrections with the proper item details for future audits.
● Once all the corrections are done, the monthly closing balance should match.
● Inform the parties involved about the modifications you've made.
● Plan a regular reconciliation schedule to fill in any gaps.
To make bank reconciliation more effortless, you can use Nanonets bank statement converter
tool to convert scanned bank statement entries into a CSV.

Why do you need bank account reconciliation?

If you’re looking for an accounting firm to help manage your business accounts, it’s essential to
find one that can offer services and solutions. bank account reconciliation is one of those crucial
parts of any accounting process.

bank account reconciliation is a vital part of any accounting process, but it's also one of the most
important tools to ensure that your business records are accurate and complete. As an
accountant or bookkeeper, you may use bank account reconciliation for several reasons:

● To check the accuracy of your accounting records

● To find errors in your accounting records (or other business-related documents)
● To identify fraud or theft within your company
● To identify problems with your accounting software
● To ensure that your company is meeting its financial obligations

Suppose you are looking into outsourcing your accounting. In that case, you must find an
accounting firm to help you develop a great set of policies for bank account reconciliation when
your business grows exponentially. Having a plan is crucial so that when your company has
multiple employees or locations, there will be no issues with bank account reconciliation.
Accountants and bookkeepers should also be able to assist in developing a plan on how to
handle these situations and keep everything running smoothly, as well as ensure all transactions
are appropriately distributed throughout the organization's books.

Steps in bank account reconciliation

bank account reconciliation is verifying, adjusting, and reconciling accounts with a bank, credit
card company, or financial institution. The objective of an bank account reconciliation is to
ensure that all debits and credits have been properly recorded within the accounting system.
Some of the steps involved in bank account reconciliation are:

1. Check all transactions on the bank statement.

One of the first steps in bank account reconciliation is to check all transactions on your bank
statement against those in your books. If you find any differences, look for the reason. It could
be that:
 ● A transaction was not recorded in your books because it's not yet due or paid (e.g., a
check).
● An error was made when recording the transaction; for example, if you wrote down $10
and then realized it should have been $100. This can happen when you are working
quickly or distracted by other things.
● You entered one amount into an account but posted another amount to that same
account later on (or vice versa).

2. Pull up your own account records.

The second step in reconciling your bank statement is pulling up your records. Use the
information you have on hand to compare against the bank statement, identifying any missing
and duplicate transactions. This can be done manually or with a computer program that
automates the process.

3. Find transactions that are not recorded on the bank statement.

Now that you have recorded all your transactions correctly, it's time to check for any missing or
incorrect transactions. There are several ways to find these:

● Check the bank statement for missing deposits and withdrawals. If an item isn't on the
bank statement, you will need to find out where it went (or whether it was never
deposited). If an item is a deposit but not recorded as such, then something must have
gone wrong with your recording process—you may have forgotten to record the deposit
or made an error when entering it into the books. The easiest way to check for this error
is by looking at each transaction individually and comparing its description with what's on
the bank statement. For example: "Cash Deposit" vs. "Check No.”

● Look through your transaction list for any one-time payments made by check or cash
that weren't recorded in the books. These should be entered immediately after they
occur if possible; otherwise, they should be entered at some point before they get too far
away from their original date so they can still be appropriately reconciled (although there
is no set deadline).

4. Ensure that all transactions are recorded in the books of your

company.
One of the most important steps in bank account reconciliation is ensuring that all transactions
are recorded in your company's books. If transactions are not recorded in your company's
books, you will have to register them and make additions or corrections.
This can be done through a computerized accounting system or manually. If you do it manually,
ensure that all transactions are recorded in your journal.
 5. Locate and reconcile differences between accounts.
The next step in the reconciliation process is to locate and reconcile differences between
accounts. Locate any transactions missing from your books or any transactions recorded on the
other company's books but not yet registered in yours. Look for transactions entered into the
wrong account, and check whether they were posted correctly to the proper time. If you find an
error, correct it immediately by making appropriate adjustments and posting corrections where
necessary.

The process of bank account reconciliation can be complex and time-consuming, but it is an
integral part of maintaining the integrity of any business. By following these steps, you will have
a more accurate record of your financial health and ensure that you are on track for success in
your business.

What Causes Reconciliation Discrepancies?

Reconciliation is a process that compares your accounting records with your bank state. The
whole process is automated, but it can still take some time to go through all the transactions and
ensure they match up. Reconciliation errors can occur for several reasons:

1. Timing Differences
Inaccurate data entry can result in reconciliation discrepancies. For example, transactions may
be entered too early or too late to be included in the reconciliation.

● Transactions may be entered too early. For example, suppose you're reconciling an
account that uses a fiscal year-end that does not coincide with your company's fiscal
year-end. In that case, you'll need to consider this when entering transactions during
your company's current month. In other words, if one of your accounts has a June 30
fiscal year end and you're currently entering transactions for July 1 through December
31 (your company's fiscal year), those numbers will have to be adjusted by adding or
subtracting days based on their respective dates of entry.
● Transactions may be entered too late. If you're working with an account that requires
special processing due to its nature or business purpose—for example, prepaid
expenses such as insurance premiums—you'll want to ensure these are entered on time
so they can contribute towards closing balances at the end of each period (or quarter).
 2. Mistakes
Mistakes can happen, but they're not always your fault. It's important to identify the causes of
reconciliation discrepancies so that you'll know how to avoid them in the future. So let’s go over
some common mistakes and what you can do about them:

● Missing or inaccurate transaction information: If you don't have all of your transactions
set up correctly in the books, there will be a discrepancy between bank statements and
accounts receivable balances (ARB) when reconciling. The solution? Double-check all
incoming transactions before importing them into the books—and check again after
importing them.
● Incorrect setup: Have everything set up perfectly? Great! But just make sure that every
account shows on both sides of the balance sheet and in a profit & loss statement (P&L),
including owner's equity accounts such as Owner's Capital and Retained Earnings. With
these key components in place, it should be easier for you to make sure that everything
balances out properly during periodic reconciliations throughout the year.

3. Missing Transactions
Missing transactions can be due to many reasons. Some transactions were never entered in the
first place, so they will not appear in reconciliation. Other transactions may have been entered
incorrectly, resulting in an inaccurate balance. Even if your system is set up to reconcile all
accounts automatically, it’s also possible that you deleted a transaction by mistake. It’s
important to review these cases carefully as they may indicate errors within your system or
processes.

4. Fraud
Business owners are particularly afraid about this one. But unfortunately, fraudsters are more
creative than company owners in their methods of doing this. Here are a few examples:

● Cash payments from clients recorded in the books as received instead ended up in
someone's pocket.
● Kiting techniques include delaying a deposit of cash and checks until proceeds from a
subsequent deposit can cover the stolen money or checks.
● Fake checks are sent to the fictitious but real-appearing supplier.
● Funds are diverted into untraceable bank accounts.
● Theft of stock or other company resources.
● Fake bank records.
Since expert fraudsters are good at hiding their traces, it can be difficult to detect fraud at first
look in a bank statement or any bank account reconciliation. These have even been known to
be missed by auditors. But if something seems odd, it's worth looking into.
Prevention is the most robust line of defense against fraud. To the most significant degree
feasible, segregation of jobs with required vacations should be the first thing any organization
implements. Most fraudsters can be discouraged only by knowing that someone is carefully
scrutinizing bank and credit card records and reconciliations and is keeping a tight check on
corporate assets.

How bank account reconciliation Software Works

The bank account reconciliation process steps are automated using bank account reconciliation
software. It examines account balances during this period and finds inconsistencies using data
from all sources of financial information. Accounting employees can look into the discrepancies.

bank account reconciliation software features include:

● Workflows are automatically reviewed and approved with the appropriate segregation of
tasks
● The ability to create standardized checklist templates
● The inclusion of clickable references to relevant policies and procedures
● Centralized filing of the relevant paperwork to facilitate review and audit processes

The benefits of using bank account reconciliation software

bank account reconciliation is all about keeping track of your money and ensuring that it
matches what you have in the bank. There are many benefits to using reconciliation software.

1. Streamline the reconciliation process

bank account reconciliation compares the balance in a ledger to the balance on the bank
statement. The process is often manual and time, consuming more time than it needs to be.
Reconciliation software automates this process, saving you time and allowing you to focus on
other tasks. It saves you time and improves your accuracy; when a transaction is entered
manually, there's always room for human error or oversights that can lead to incorrect numbers
in your ledger.

2. Enhance internal controls

bank account reconciliation software is an important tool for any business. It can help improve
internal controls, which are essential to running a successful company.
Internal controls are the processes you use to monitor and control the activities of your
employees and other stakeholders so that they operate as they should. This can include:

● Preventing fraud by ensuring that transactions are recorded correctly, in the right place,
and at the right time;
● Ensuring that managers have access to accurate information on how much money they
have available;
● Making sure that when no one is looking, no one makes any mistakes!

3. Optimize and standardize the process

bank account reconciliation is a process that many businesses use to ensure their financial
records match up with their bank statements. While it might seem tedious, it's an important part
of safeguarding your company's finances.

bank account reconciliation software can help you standardize and automate this process,
making it more efficient and easier to audit, train new staff and maintain consistency across your
business.

4. Reduce errors
The average business is estimated to lose $100,000 a year due to financial errors. Companies
need to protect themselves from these types of losses by ensuring their accounts are in order,
but it can be difficult for small businesses and nonprofits with limited resources.

bank account reconciliation software can help you improve the accuracy of your accounts by
minimizing the risk of errors or fraud. When you use this type of software, you will become more
confident about the data in your system because it gives you real-time updates on transaction
details so that any changes are immediately visible. This gives you an accurate view of all
activity related to an account throughout its lifecycle—even if some transactions occur offline or
outside normal hours—which helps maintain trust among customers who rely on accurate
information when deciding where to spend their money (or time).

5. Save time
bank account reconciliation software reduces the number of reconciliations that need to be
done. The fewer entries you have in your accounting system, the better it is for efficiency and
accuracy. The fewer reconciliations that need to be done, the more time you can spend on other
tasks that will increase your business’s overall performance instead of being bogged down with
tedious manual tasks such as transferring data from one place to another or doing calculations
manually instead of using an automated tool.

6. Increase employee satisfaction

Do you know why it’s important? Employee satisfaction contributes to customer satisfaction. If
employees are more satisfied, customers will be more satisfied. Research has shown that bank
account reconciliation software can increase the motivation of team members by reducing
repetitive tasks and allowing them to spend more time on value-added tasks.

7. Improve transparency
bank account reconciliation software can help you increase transparency. Transparency is an
important part of any business, and it's essential for companies with a stakeholder base that
includes investors, customers, and other parties. It can be used to reduce fraud by providing
data that can be audited. It also helps improve internal controls by making sure everything is
recorded correctly and accounted for in the right way.

8. Boost confidence in data

If your company has many transactions, keeping track of all the balances can be challenging.
bank account reconciliation software helps you do this by providing a way to gather and track
relevant information from different sources in real-time. Using such software, you'll have access
to all the relevant data at your fingertips, with no need for manual entry or spreadsheet tracking.
This helps ensure accurate reporting and faster turnaround times on financial transactions and
processes—all while ensuring that data integrity is maintained throughout the system.

Conclusion
If you have the right tools and know how to use them, you can save time, stress, and worry.
bank account reconciliation is essential because it helps ensure that your financial records are
accurate and up-to-date. By reconciling your accounts regularly, you can track any balance
changes over time and make adjustments when needed (such as correcting errors). This can
help protect you against fraud or embezzlement by employees who might try stealing money
from their employers if they don't know what they're doing.
FAQ

Q. Who should reconcile?

While departmental costs are monitored and reconciled by administrative personnel, fiscal
management is the responsibility of department chairs, deans, directors, principal investigators,
and organizational managers (referred to as unit leaders).

The reconciliation role can be entrusted to management staff, but the unit leader is ultimately
responsible for its management.
In addition to the mandatory monthly reconciliation and approval, a quarterly document-based
review of projected and actual income and costs with the unit leader is strongly recommended.

Q. Why should accounts be reconciled?

bank account reconciliations must first be conducted for the financial statements to be
comprehensive and accurate. Specifically, businesses must check for discrepancies in any
account that might lead to a substantial misrepresentation on the balance sheet. In this way,
companies can quickly pinpoint and record in the general ledger any modifications that are
required.

Q. What are common reconciliation terms?

• Timing differences
When you're reconciling your accounts, you're making sure that the balance on each account is
accurate. This can be tricky if you have accounts that use different accounting methods for
revenue and expenses.

One of the most common differences between cash and accrual accounting is timing. Cash
accounting is based on when money is received or paid out; it's also known as real-time or
perpetual inventory (inventory means goods). Accrual accounting, on the other hand,
recognizes revenues when earned and expenses when incurred—regardless of whether they've
been paid yet.

• Dollar amounts differences

A dollar amount difference is a difference between an account balance and the related journal
entry. For example, if your bank statement says you have $1,000 in your checking account, but
QuickBooks only shows $900, you have a dollar amount difference of $100.

The easiest way to fix this reconciliation error is by adjusting the account balance directly in
QuickBooks. This can be done by editing the transaction or clicking Reconcile on the
Accountant tab's toolbar and selecting "Edit Transaction."
https://www.sfasu.edu/controller/docs/account-reconciliation-training.pdf

• Items incorrectly coded

There are three main causes of coding errors:

● Coding errors: An error in the coding of an item. For example, if you accidentally code
purchase as "office supplies" instead of "equipment," that's a coding error.
● Classification errors: An error in classifying an item to its correct classification. For
example, if you accidentally classify a purchase as "office supplies" when it should be
classified as "equipment," that's a classification error.
● Description errors: This is called detail-level matching (i.e., reconciling individual
transactions).

• Erroneously posted item

An erroneously posted item is one that was posted to the wrong account, period, entity, or side
of the accounting equation. For example, if you were selling something on eBay and
accidentally entered the information for an item, you were buying instead of selling it.

• Missing entries

The most common reason for missing entries is an error in data entry. For example, if the
transaction was entered correctly, but the value of one or more of its fields was incorrect, this
can cause a missing entry to appear on your reconciliation report.

Another common reason for missing entries is incomplete data from the source system (e.g.,
when you have to manually input balances or do not have access to certain information). You
may also experience missing entries if you receive incomplete data from another party (e.g., if a
vendor doesn't include all of its charges) or because one of your partners failed to provide
accurate information about their transactions.

Q. Why should more than one person be involved in bank account reconciliation?

The most important reason for having more than one person involved in bank account
reconciliation is to safeguard against fraud. If the person who enters data reviews it and checks
it is the same, this can lead to a conflict of interest that may cause errors or even fraud.

In addition to safeguarding against fraud, involving multiple people in bank account

reconciliation helps with accuracy and efficiency. If only one person does all three jobs (enter,
review and check), then there is a chance that mistakes will be made when entering or
reviewing data because this individual may not have enough time to complete both tasks
properly or thoroughly enough before moving on to checking everything out again. Having
multiple people involved means that each task gets done more carefully (and therefore more
accurately) because no one wants their work criticized by another colleague who might see
room for improvement later on.

Q. What Is an Example of Reconciliation in Accounting?

Reconciliation is comparing account balances to detect any errors, discrepancies, omissions, or
frauds.

Reconciliation example-
Assuming a company matches its bookkeeping with its bank statement, it has found no
discrepancies. After each month, the firm does this drill. It discovered that the bank had
deducted charges from its account balance that weren't reflected in the company's books in
response to a cheque it had made on the last day of the month.
There will be discrepancies between the company's books and the bank's records, necessitating
journal entries to reflect the correct amounts. The firm will record the bank fees, and the bank
balance will be updated to reflect the true financial position.

Q. What Is the Reconciliation Process in Accounting?

Reconciliation is an accounting process that analyses two sets of records to ensure that the
numbers are accurate and consistent. Accounts in the general ledger are accurate, consistent,
and comprehensive, which reconciliation can verify. However, in addition to its corporate
applications, reconciliation could also be used for personal objectives.

bank account reconciliation is an excellent tool when attempting to understand why there is a
discrepancy between two sets of books or balances. Due to the varying timing of payments and
deposits, a particular variation may be acceptable. Yet, discrepancies that cannot be easily
explained may be fraud indicators. Daily, monthly, or annual record-keeping reconciliations are
all viable options for businesses and individuals.

Q. How to Do bank account reconciliation?

bank account reconciliation is verifying the accuracy of a bank or other financial institution's
record of your economic activities and the balance of a particular account at a given time. You
can thus demonstrate any of the two interpretations below.

● The income, cost, gain, or loss transactions belong in that account and, thus, should not
be transferred to a more appropriate account.
● The transactions included in an asset or equity account are genuine and should not be
flushed out of the balance sheet by transferring them into income statement accounts.

The two ways to reconcile an account are-

 ● Documentation Review
A documentation review is the most prevalent method of bank account reconciliation, and
auditors favor it. Invoke the account information in the accounting software and evaluate the
suitability of each transaction displayed for the account. For instance, if you are reconciling the
trade accounts receivable account, the account balance should equal the total of the open
accounts report.

● Analytical Analysis
Estimate the amount that should be in the account, based on previous activity levels or another
indicator, as part of an analytics assessment. Compare, for instance, the estimated amount of
projected bad debts in the open accounts receivable account to the balance in the allowance for
doubtful accounts contra account.