bank reconciliation

Bank reconciliation is a comparison of the amount or balance on a company’s bank statement with the balance in the accounts. This reconciliation of two balance accounts ensures that there are no changes required and that all the cash records of the company are correct and up to date. This process takes place at regular intervals to ensure the accuracy of the cash records of the company. 

Purpose or need of Bank Reconciliation

Bank Statements show records that are not only reliable but also contain accurate financial records. Bank reconciliation is all about checking the books against the financial records. You will achieve the following benefits from this.

  • It helps you find bookkeeping errors or mistakes and fix them 
  • You can easily locate wrong payments. If you keep an eye on expenses and regularly review them, you will find out any suspicious activity easily. 
  • A bank reconciliation statement keeps you updated regarding the financial performance of your business
  • You get a proper classification of tax-deductible expenses while doing bank reconciliation 
  • For accurate tax filing, you need a complete record of business income and expenditure after reconciliation. This is the only way to do tax returns to get reliable results.
  • Bank reconciliation helps you to track profitability and assign expenses to jobs in an effective manner.
  • It keeps track of all the account receivables and account payables
  • Reconciliation of bank accounts is an effective way to end errors like payments that have somehow been omitted or missed.
  • Another amazing purpose of bank reconciliation is the early detection of fraud and its immediate reversal.

Bank Reconciliation Procedures

  1. Firstly, you need to compare the list of issued checks and deposits with bank statement records to find any unclear checks and deposits in transit.
  2. Then, you need to add back any deposits in transit 
  3. Now you need to deduct any outstanding checks
  4. Above mentioned steps provide you with an adjusted bank cash balance in return 
  5. Now add interest earned and notes receivable amount to the company’s ending cash balances.
  6. To get an adjusted cash balance, you need to deduct bank service fees, NSF- not sufficient funds checks, and penalties. 
  7. When reconciliation is complete, you can match the cash balance of the company with the adjusted bank balance.

Steps for Bank Reconciliation

You can perform a bank reconciliation process either automatically or manually, but an automated process is much more effective. Here is a step-by-step process for bank reconciliation in detail. 

Compare Deposits

While making a transparent comparison of deposits, all you need to match both the debit and credit side of bank statements in the general ledger. Further, recheck that your credit side cash book balance is in agreement with the debit side bank statement balance. 

Make adjustments- Bank Statements

Then comes the consideration of transactions that have not yet been displayed in your bank statement. These include values like outstanding checks, deposits in transit, and bank errors. If there is an omission of balance or a wrong amount has been entered into the bank statement. 

Make Adjustments- Cash Accounts

Cash accounts adjustment includes adding interests and removing any overdraft and bank fees if present. Look for any NSF checks, bank or service charges, cash account errors, and deduct 

Final Balances Comparison 

After making necessary adjustments in the cash balance and bank statement, check if the values of both sides are the same. If yes, your bank reconciliation is done and if it doesn’t match, you should check for any missed entry. Your reconciliation has not yet ended. 

Benefits of Reconciliation Software

There are many effective tools available in the market that provide you with fast and timely reconciliation. They will benefit you in your calculations.

Automated and Efficient 

Manual reconciliation wastes your time and energy to find inconsistencies in the system. With an automated system, your team can focus on other high-level duties, controlling and reducing audit risks. You do not have to repeat tasks to check errors, as the software provides complete accuracy and insight into the bank reconciliation process.

Less Errors and improved Internal Controls 

If you adopt bank reconciliation software for your business, it increases internal controls and the system gets smooth and transparent. With automated mapping, your errors decrease and there is more control over unusual activities and changes that are not relevant to your system.

Bank reconciliation software gives you immediate alerts of any problem on the spot. 

High-level transparency 

Bank reconciliation software has the capability to save past reconciliation processes and history. This helps them in audit trials and compliances and produces a quality budget for future expenses. It provides you with a better idea about the cost and helps manage the finances of your organization.

Delegated Responsibilities 

With reconciliation software, you can now assign different tasks and responsibilities to your team to help manage controls effectively. When every member of the accounting team is assigned to a team, they understand their roles and responsibilities well. 

An automated system knows what should be the next step in a reconciliation process. With a well-automated reconciliation system, you can achieve 100% accuracy and stay on top of the cash balance.

Bank Reconciliation Statement Challenges

There are certain challenges that we may face while making a Bank Reconciliation statement. These real-time challenges are faced by many organizations on a daily basis. Let’s have a look at some of these.

A Slow Process due to manual data output

While creating a bank reconciliation statement, analysts have to extract bank statements out of the banking system. This requires them to log into the system to get access to the ERP system to analyze and match it with the cash balance. 

Hence, due to the involvement of high manual intervention, this recurring activity is slow. 

Risk of Human Errors

A Manual reconciliation process may result in human error or mistake. Therefore, due to the higher possibility of errors and fraud, there is less accuracy involved in the transaction process. 

No proper Central System for Audit purposes

The audit requires you to store bank reconciliation statements properly. In the case of manual or paper-based reconciliation statements, the audit process is hard to maintain and carried out with complete transparency. 

The formula for Bank Reconciliation Calculation

Bank Statement Balance= (Cash account balance per your records) addition or subtraction ( reconciling particulars) 

If it is difficult for you to reconcile bank statements of your business, you can avail professional bookkeeping services

By Anurag Rathod

Anurag Rathod is an Editor of, who is passionate for app-based startup solutions and on-demand business ideas. He believes in spreading tech trends. He is an avid reader and loves thinking out of the box to promote new technologies.