Reconciling Differences Between Bank Statements and Business Cash Balance

Does your bank statement accurately report your businesses cash balance? Probably not! Oftentimes, there is a difference in the amount of cash reported on the balance sheet and the actual balance in the business’ bank account for that same period. This difference is not a mistake: it simply shows the delay between when your business remits payments and when they are cleared by the bank.  In this article, we discuss how to reconcile these discrepancies both manually and through accounting software. 

WHY RECONCILE?

Reconciling your business’ bank account on a monthly basis is beneficial in two ways: 

1. It provides an accurate cash balance at the end of the period.  This helps avoid overdraft fees and stale outstanding checks. 
2. It ensures that all transactions that have been cleared are recorded in the general ledger.  Examples of transactions like these might include wire and ACH receipts, or other receipts that have been deposited into the bank account but do not have a physical paper trail. On rare occasions, the bank might post a deposit or withdrawal for the wrong amount.  

HOW TO RECONCILE MANUALLY

While most accounting software will assist the user in reconciling the bank statement, it is essential to understand the bank reconciliation and complete it manually if necessary. Start with the bank balance at the beginning of the period you would like to reconcile. Then, add all deposits that have cleared the bank, and lastly, subtract all the payments. The final amount should match the bank balance at the end of the period.  

You might notice that some deposits made closer to the end of the period might not clear the bank and will remain outstanding. These should be added to the overall bank balance at the end of the period. Likewise, other payments, especially checks issued at the end of the period, might not clear the bank and will reduce the cash balance for the period. To account for this, all outstanding payments need to be reduced from the bank balance at the end of the period. The ending total represents the actual amount of cash available in the bank account. If all transactions are correctly recorded and the account is reconciled appropriately, then the reconciled cash balance should match the amount of cash reported in the general ledger.  

How to reconcile using accounting software

If you’re performing the bank reconciliation in an accounting software, begin the bank reconciliation by entering the bank balance at the end of the period, as well as the period end date. Also, be sure your beginning balance matches last period’s ending balance. Next, select all deposits and withdrawals reflected on the bank statement.  Be sure to document transactions that appear on the statement but are missing in accounting software. The difference between the reconciled bank balance and the balance on the statement should be zero. 

Do not finalize the reconciliation until the difference is eliminated. This difference between the reconciled account balance and bank statement shows either transactions that did not clear the bank account but were marked as cleared, or vice versa, cleared transactions that were not checked off. If such a difference exists, compare the marked transactions in the reconciliation to the bank statement. It is a best practice to record bank transactions and check them off on the reconciliation the same way they would appear on the bank statement.  

As you reconcile the account, keep an eye out for old payments that have not yet cleared the bank account. Be sure to follow up with the recipients, and either reissue the payment or cancel the payment and reverse the payable and expense. Also, deposits that bounce and do not clear the bank should be reversed in the General Ledger with the cash account credited for the amount of the original deposit.  

If you’d like to learn more about reconciling your bank accounts or need further assistance reconciling bank accounts and resolving reconciliation discrepancies, reach out to our Accounting Services experts at Sikich today. 

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