You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the Payments, expenses, and other deposits made into the checking account of the chapter. The statement also includes Journal Entries, Deposits, Checks, and Payments Posted on the account.
Once you’ve received it, follow these steps to reconcile a bank statement:
- COMPARE THE DEPOSITS- Match the deposits posted on greekbill's Checks and Deposits module (Manually posted or synced over with Bank Sync) with those in the chapter's bank statement. Compare the amount of each deposit recorded, the Dates, and the Vendor, and make sure they match up with the chapter's bank account.
ADJUST THE BANK STATEMENTS-Adjust the balance on the bank statements to the corrected balance. For doing this, you must add deposits in transit, deduct outstanding checks and add/deduct bank errors.
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- Deposits in transit are amounts that are received and recorded by the business but are not yet recorded by the bank. They must be added to the bank statement.
- Outstanding checks are those that have been written and recorded in the cash account of the business but have not yet cleared the bank account. They need to be deducted from the bank balance. This often happens when the checks are written in the last few days of the month.
- Bank errors are mistakes made by the bank while creating the bank statement. Common errors include entering an incorrect amount or omitting an amount from the bank statement. Compare the cash account’s general ledger to the bank statement to spot the errors.
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ADJUST THE CASH ACCOUNT-The next step is to adjust the cash balance in the business account.
Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees.
To do this, businesses need to take into account bank charges, NSF checks, and errors in accounting.
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- Bank charges are service charges and fees deducted for the bank’s processing of the business checking account activity. This can include monthly charges or charges from overdrawing your account. They must be deducted from your cash account. If you’ve earned any interest on your bank account balance, it must be added to the cash account.
- An NSF (not sufficient funds) check is a check that has not been honored by the bank due to insufficient funds in the entity’s bank accounts. This means that the check amount has not been deposited in your bank account and hence needs to be deducted from your cash account records.
- Errors in the cash account result in an incorrect amount being entered or an amount being omitted from the records. The correction of the error will increase or decrease the cash account in the books.
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- COMPARE THE BALANCES-After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same. If they are still not equal, you will have to repeat the process of reconciliation again.
Once the balances are equal, businesses need to prepare journal entries for the adjustments to the balance per book.