Balance Sheet Savvy

Cracking the Code: Understanding Bank Reconciliation for Accurate Finances

Bank Reconciliation: Understanding the Balance Per BankHave you ever wondered why the balance on your bank statement doesn’t match the balance in your own records? It’s a common occurrence and can often leave individuals scratching their heads in confusion.

Fortunately, the process of bank reconciliation exists to help us make sense of these discrepancies. In this article, we will delve into the fascinating world of bank reconciliation, focusing specifically on the items that are added or subtracted from the balance per bank.

By understanding these concepts, you’ll be better equipped to manage your finances and ensure that your records align with those of your bank.

Items added to the balance per bank during bank reconciliation

Deposits in transit

Deposits in transit refer to cash or checks received by a company that haven’t been processed by the bank as of the statement date. These deposits are included in the company’s records but aren’t reflected in the bank’s balance since they’re still in transit.

To reconcile this discrepancy, the deposit in transit needs to be added to the balance per bank. By doing so, the bank balance will accurately reflect the true amount available in the account.

To identify these deposits, compare the dates on which you recorded the deposits with the dates on the bank statement. Any deposits that were made before the statement date but aren’t shown on the bank statement are likely to be deposits in transit.

By adding these deposits to the balance per bank, you’ll be able to ensure that your records align with the bank’s records.

Bank errors

Banks, just like any other institution, are prone to making mistakes. These errors can have a significant impact on your bank balance.

Bank errors can occur in several ways, such as the bank withdrawing too much or too little from your account, or erroneously adding funds to your account. When a bank error is detected during the bank reconciliation process, it must be rectified by adjusting the balance per bank.

For example, if the bank accidentally withdrew $100 more than they should have, this amount needs to be added to the balance per bank. Similarly, if the bank deposited $50 into your account that shouldn’t have been there, this amount needs to be subtracted from the balance per bank.

Items subtracted from the balance per bank during bank reconciliation

Outstanding checks

Outstanding checks are checks that a company has issued but haven’t been cashed or cleared by the bank as of the statement date. These checks have already been recorded in the company’s records as expenses or deductions, but since they have not yet been processed by the bank, they are not reflected in the bank’s balance.

To reconcile this discrepancy, the outstanding checks need to be subtracted from the balance per bank. To identify outstanding checks, compare the amounts and check numbers of the checks you have issued with those listed on the bank statement.

Any checks that haven’t been cleared by the bank should be considered outstanding. By subtracting these outstanding checks from the balance per bank, you’ll ensure that your records align with the bank’s records.

Corrected bank errors

Just as banks can make errors that affect the balance per bank, they can also make corrections to rectify those errors. These corrected bank errors are adjustments made by the bank to resolve discrepancies in the account balance.

Once identified, these corrected bank errors must be reflected in the bank reconciliation process by reducing the balance per bank. For example, if the bank had mistakenly added $200 to your account, but later discovered the error and subtracted $200 from your account, this corrected bank error needs to be subtracted from the balance per bank during reconciliation.

By accounting for these corrections, you’ll ensure that your records accurately reflect the bank’s corrected balance. Conclusion:

In conclusion, bank reconciliation is a crucial process that helps individuals and businesses ensure that their records align with the bank’s records.

By understanding the items added or subtracted from the balance per bank during this process, you can maintain accurate financial records and have a better understanding of your account’s true balance. Deposits in transit and bank errors are added to the balance per bank, while outstanding checks and corrected bank errors are subtracted.

This knowledge will empower you to navigate the complex world of banking with confidence and clarity. In conclusion, understanding the items added or subtracted from the balance per bank during the bank reconciliation process is crucial for maintaining accurate financial records.

Deposits in transit and bank errors are added to the balance, while outstanding checks and corrected bank errors are subtracted. By reconciling these discrepancies, individuals and businesses can ensure that their records align with the bank’s records, leading to a clearer understanding of their true account balance.

It is essential to regularly perform bank reconciliation to manage finances effectively and maintain financial accuracy. So, take charge of your financial records, reconcile your bank statements, and keep your financial records in order.

Popular Posts