You need to determine the underlying reasons responsible for any mismatch between balance as per cash book and passbook before you record such changes in your books of accounts. When your business issues a check to suppliers or creditors, these amounts are immediately recorded on the credit side of your cash book. However, there might be a situation where the receiving entity may not present the checks issued by your business to the bank for immediate payment. This way, the number of items that can cause the difference between the passbook and the cash book balance is reduced. And as a result, it gets easier to ascertain the correct balance in the balance sheet.

Final reconciliation of accounts

Common errors include entering an incorrect amount or omitting an amount from the bank statement. Make sure that you’ve also taken into account all deposits and withdrawals to an account when preparing the bank reconciliation statement. These outstanding deposits must be deducted from the balance, as per the cash book, in the bank reconciliation statement.

Where there are discrepancies, companies can identify and correct the source of errors. Begin with a side-by-side comparison of your bank account statement and your company’s accounting records. Check that your financial transaction records include all payments and deposits for the transaction period, as well as the final balance. When all these adjustments have been made to the books of accounts, the balance as per the cash book must match that of the passbook. If both the balances are equal, it means the bank reconciliation statement has been prepared correctly. Typically, the difference between the cash book and passbook balance arises due to the items that appear only in the passbook.

1. There are times when the bank may charge a fee for maintaining your account, which will typically be deducted automatically from your account.
2. Regardless of how you do it, reconciling your bank account can be a priceless tool in your personal finance arsenal.
3. Keeping on top of your bank reconciliation ensures that you’re always aware of your company’s financial situation.
4. Book transactions are transactions that have been recorded on your books but haven’t cleared the bank.
5. If you’re missing transactions in your personal records, add them and deduct the amount from your balance.

Once you have identified all the differences between the two statements, identify the source of the discrepancy. Common sources include deposits in transit that have not yet been deposited in your bank account, as well as bank fees that have been withdrawn by your bank but may have been missed in your company records. Once you’ve identified all the items that align between the two records, it’s time to account for any discrepancies. These may include deposits in transit, outstanding checks, bank fees, or miscalculations by the bank or the internal accounting team. The statement itemizes the cash and other deposits made into the checking account of the business, as well as any expenses paid by the business. This includes everything from wages and salaries paid to employees to business purchases like equipment and materials.

Bank Fees

If an error is identified during the reconciliation process, it’s not always at the company’s end. Banks can also make errors, and if the mistake can’t be identified, contact the bank. Reconciliation reports provide a summary of the reconciliation process and help to identify any errors or discrepancies.

Failing to review these reports regularly can lead to errors in the reconciliation process. Starting with an incorrect opening balance can lead to errors in the reconciliation process. It’s essential to ensure that the starting balance is accurate before beginning the reconciliation process. The first step is to obtain a detailed statement from the bank, which includes information about checks cleared and rejected by the bank, transaction charges, and bank fees.

Deposits in Transit

We offer reconciliation reports, discrepancy identification, and live accountants to work with for ease and accounting for in confidence when closing your books. Michelle Payne has 15 years of experience as a Certified Public Accountant with a strong background in audit, tax, and consulting services. She has more than five years of experience working with non-profit organizations in a finance capacity.

Example 1: Preparation of Bank Reconciliation Statement Without Adjusting the Cash Book Balance

They also can be done as frequently as statements are generated, such as daily or weekly. Such information is not available to your business immediately, so you record no entry in the business’ cash book for the above items. You will know about this only when you receive the bank statement at the end of the month. As a result, your balance as per the passbook would be less than the balance as per the cash book. In this instance, your bank has recorded the receipts in your business account at the bank, while you haven’t recorded this transaction in your cash book. As a result, the balance shown in the bank passbook would be more than the balance shown in your company’s cash book.