Having a successful company requires you to perform excellent accounting. Keeping your ledgers in order is crucial to controlling expenses and calculating profits. In processes related to maintaining books of accounts updated, Bank Reconciliation is mandatory. Below we define the most relevant aspects regarding this process.

A bank reconciliation summarizes all business and banking transactions and activities of a specific period. Reconciliations are commonly prepared at least four times a year.

Bank reconciliation statements compare transactions and balance from your business's financial records and ledgers with your bank statement. It is also used for Identifying discrepancies and the source of errors when your balance and the bank balance are not the same.

Before profoundly immersing yourself in the whys and whats of bank reconciliations, you must understand some primary concepts regarding this topic. 

• Deposits in transit. These correspond to checks or cash that have not yet been recorded in ledgers or records of the bank account where you deposit the funds. This happens when funds are deposited too late for the bank records that day or when your company still needs to send the funds to the bank at all.

• Outstanding check. A payment recorded by your company but which has yet to appear in your company bank account as a deduction from the cash balance –the bank sends the account statement every month at least once.

• NSF check. NFS stands for “Not Sufficient Funds,” which means a check that couldn’t be paid to the bank due to the account not having enough funds. 

The bank reconciliation procedure brings several benefits to your organization beyond just balanced amounts of money in your personal ledgers and bank accounts. The most relevant benefits are the following:

• It confirms that the payment has been processed. When you issue a check or make a payment, it should appear in the next few days in your bank statements. This way, you confirm that the payment has been correctly processed.

• It helps you to identify and reduce errors that can affect financial statements and reports. This is the primary purpose of the bank reconciliation process; checking whether there are discrepancies between your records in your ledgers and your bank account balance. Remember that errors can negatively affect future transactions, reports, and investments.

• It summarizes the business and banking activities. An adjusted bank balance provides an overall summary of all banking activities; it means inflows and outflows of cash and shows the company's ending cash balance for a specific period. 

• It helps to prevent fraud in companies. For example, when a check has been altered or does not have funds, you can track it to prevent future frauds or incongruences. NFS checks also must be recorded in your company’s cash records and ledgers.  

• It helps you to identify errors affecting your tax reports. Your company's tax statements depend on your profits for the period. For this reason, you must know the summary of your earnings after deducting bank service fees and the costs for bank transactions and adding the interest earned. This way, you will create a formal tax report. 

Bank reconciliation is a relatively easy task. You can efficiently perform it in five steps, which we will now mention.

1. Check Your Closing Balance for the Prior Month

First, you know exactly the closing balance of the prior period. It includes checks, debit, credits, and cash balances. With this amount clarified – it must be cleared in your ledgers – you can correctly analyze money movements in the current period. In other words, your previous closing balance corresponds to your initial number.

2. Add deposits that Are not Cleared and Deduct Checks in Transit

Bank reconciliation should consider all the deposits you have made in recent days and check in transit that must be charged to your bank account in subsequent days. It means you must get ahead of the moves to clarify the bank's ending cash balance.

3. Add any Earned Interest or Deduct any Fees

Now you know the adjusted cash balance of your business, you should add and subtract all possible interests and bank fees your organization must pay. The best to do this automatically is to use a spreadsheet document or template, some of which we offer below. An Excel spreadsheet will allow you to calculate amounts and perform arithmetic processes efficiently.

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4. Make Sure that Deposits Match the Amounts the Bank Recorded

After outstanding checks and deposits in transit effectively appear in your bank account statements, you should ensure that your accounting records match the amounts in your bank cash account. Of course, including fees and interest income to compare the corresponding amount.

5. Investigate Discrepancies to See if Something is Missed

Whether you find differences between accounts, your company's records, or bank statements, you should investigate the source of the differences. There are two options: either there are errors in your own ledgers, or bank errors. Whatever the case, analyze the credit cash, outstanding checks, NSF checks, and other documents affecting your ending balance. 

Here we share four templates to facilitate your reconciliation process since they contain all the necessary information and sections to compare balances.

Monthly Bank Reconciliation Template

Download it from Smartsheet.

This corresponds to a short spreadsheet template that will facilitate you to record deposits in transit and outstanding checks currently running in the period. It's divided into two main sections referring to deposits and withdrawals. You can quickly enter your financial details in cells destined for this, and this free template will automatically calculate the balance per your books. With this spreadsheet, you won't need any accounting software to manage your ledgers.

Simple Bank Reconciliation Template

Download it from Templatelab.

This simple spreadsheet document considers deposits and withdrawals to calculate the final total amount registered in your accounting ledgers. It includes columns for entering dates and amounts and describing reconciliation and type of transactions. It's a perfect template to reduce payment errors in a few basic steps.

Bank Reconciliation Statement Template

Download it from Allbusinesstemplates.

This statement template for reconciling is simple since it considers the opening cash account balance and the closing cash balance to calculate differences quickly. Adding and subtracting receipts not banked and checks not presented, you can reconcile amounts and easily compare them with bank statements.

Prepared Banking Reconciliation Statement

Download it from Educba.

This free template considers all the transactions in separate rows and just in one section. This document describes transactions as withdrawals and deposits and automatically calculates amounts to maintain the bookkeeping update. This is an ideal spreadsheet document for users who want to keep their two accounts in order and prevent errors.  

The bank reconciliation process integrates uncleared checks, deposits in transit, and outstanding checks to forecast general finances in the short term. Thanks to this information, you can know if your company is growing or decreasing at regular intervals in terms of profits and size. Good accounting also will attract new investment due to the profitability reflected. Keeping your book in order will be easy with the templates we've given you here.

For more resources and templates, remember to check our blog periodically. We’re continuously sharing exciting tools for your accountant to control payments and manage better any transaction you make with your banks.