Reconciliation Set Up and Process at Banks

Reconciliation Set Up and Process at Banks

Making sure that the bank statements and the listed transactions of your business's internal records are suitable with each other is necessary. 

This process is where you compare your bank statement with the transaction history. This process is bank reconciliation. 

his procedure will include going through your ledgers and the financial statements. 

Under this process, you have to make sure that both the records are accurate with each other.

You will be checking your bank statements about your financial report. This entire process's main purpose is to ensure that both records a line with each other. 

During this process, if you find any differences, you will have to work and fix them. It will help you maintain a flawless financial report on your expenses. 

For better understanding, it is advised that you relate your statements at the end of the month. It will benefit you in correcting any errors found. 

Also, it is easy to spot minute mistakes beforehand rather than getting in trouble with huge differences. 

In this article, let us go through a detailed explanation of the bank reconciliation process and the factors that make it necessary.

Reasons for bank reconciliation

You might be thinking why this process is necessary to keep your business standard. 

Here are a few factors that assist in the process of bank reconciliation of your company.

  • You will be able to find out if any unauthorised transactions that may lead to theft.
  • Tracking to know that your business transactions, the penalties, loans, and everything that is recorded in the company books are true
  • Provided precise statements of the accounts receivable and accounts payable
  • Being able to spot if there are any missed or double payments to detect any issues
  • You will be able to detect if there is any fraud or any other illegal payments.

Procedure for bank reconciliation of your accounts

  • Get the bank records

Initially, go through the list of the transactions that you have made. To access this information, you can go through online banking and any bank statement your company holds. You can also check through any accounting software and share the data.

  • Gather your business records

You should also be able to access your company's ledgers or books. Any typical information on a spreadsheet long book or any accounting program is collected.

  • Choose Your Method for Reconciliation

This will completely rely on the process of how you want to track your money. You can adapt any bookkeeping method, like writing in a chequebook or keeping a record of any return checks, or simply a spreadsheet. Once you have decided on your reconciliation method and gathered all the information, we will start the procedure.

  • Compare the deposits

Now you have to compare your transaction records to your bank statements. 

Firstly, you make sure that all the deposits are listed on your bank statement, which is then recorded in your record or ledger. 

You will compare both the totals of the deposits and the records to check for the missing deposits.

Next, you will have to cross-check the deposits that are listed on your bank statement and your records; you will make sure some deposits still need to be included. 

You must find out what happened to the missing deposits and where they are.

There might be a few possibilities that the deposit might have been received after the cut date of the monthly statement release. 

You can check the emails and notifications regarding the deposits into your account. 

You have to check the history of any missed notifications. Contact your deposit manager or the bank to investigate further issues. 

Find out what happened to those missing deposits so you can adjust your records.

  • Compare the withdrawals

In the next step, you will compare the withdrawals, whether big or small or accounted for in both records. 

Both records pay the bank statement, and your record must mention the withdrawal accounted for. 

If you miss any withdrawal, find out what happened to it. And if a withdrawal is missing, that means it has yet to be cast, or it is not cash by the statement within the deadline.

  • Look for any bank adjustments

Sometimes if your transactions need to be accounted for in your will records because of any Bank adjustment, this might lead to fees or monthly maintenance. 

For any interest-wearing accounts, a bank adjustment will be the amount of interest over the statement period.

If you come through any bank adjustments, make sure to record them in your record and adjust the balance.

  • Adjust the cash balance

You will have to adjust all your records accurately to the company transactions. You will do this by ensuring that all the deposits, withdrawals and everything accounted for in the company's cash account is aligned and accurate.

  • Compare the end balances

Once you have been clear with all the records and you have made all the classifications, you will have to confirm if the end balances. 

This will be the ending process of the bank reconciliation. And still, if you find any unequal errors, you will have to repeat the process.

Issues faced found during the process of the bank reconciliation

Since the sole motive is defined if there are any issues, here are some of the combinations that are found during bank reconciliation

  • Returned checks after deposition

Sometimes the bank will decline the deposit of any check. This is because the check can obtain money from a foreign bank account. 

In such cases, you must apply another entry that mentions the failed deposit by giving a credit card or cash to the account. 

And this process will reduce the balance by increasing the debit in the accounts for the account receivable.

  • Cancelled checks that the bank

Sometimes, your check can be uncleared by the bank for an extended amount of time. 

Thus, you have to find another replacement and cancel the check. If the bank rejects the check, then they will decline to cash it. 

If the bank is not informed about the rejected check, you must apply a credit to the cash account. 

You will also have to apply a debit explaining the payment.

  • Double payments

Failure to notify the bank concerning the voided check can lead to a double payment. 

In this case, the way will cash the voided or the replaced check, and you must request the payee's repayment.

  • Lost and vague checks

It's normal to lose a few checks you must submit to the bank sometimes. 

Inside cases, you must replace the cheque and inform the payer regarding the missing and vague checks.

Importance and Benefits of the bank reconciliation

Many benefits make the process of reconciling your bank statements important. 

It is important and necessary to reconcile your bank accounts. The below-listed advantages of this process;

  • Helps you to maintain a transparent record of all your bank transactions

When you compare both statements regarding the transactions, you can conserve a precise record. Your entire company financial profile is based on the result obtained.

  • Makes you understand the financial graph of your expenses and accounts

With the achieved conclusion through the comparison, you can understand how the economy. About the expense graph, you will be able to secure new ideas for the next time transactions.

  • It will help you avoid unnecessary activities and discover suspicious transactions.

When the statements are not tallying with each other, it might be due to many reasons. If any suspicious activities are going on, you will be able to find them.

  • It can identify any fraud or other illegal activities

If any fraud or other illegal activities is going on, they can be found.

  • It will create a strategy for future investments

Through the analysis, you will be able to make a decision about your finances and learn to process your future transactions.

  • With the comparison of the accounts, you can maintain a healthy account

The process of bank reconciliations aids you in achieving a healthy and error-free account.

  • You can track all the accounts payable and all the accounts receivable

This will give you get clarity on the prominent accounts payable and the accounts receivable held by your company.

  • You will be able to track any missing checks or payments

To avoid any issues with the checks or the process, you will find if there are any missing checks or transactions. You can go through and check the statement regarding the missing payments.

  • Finding out any bank errors in the financial statements

You will be able to rectify if there are any errors in the bank statements. With this, you will avoid repeating the mistakes.

  • With pr per knowledge of bank reconciliation and the results, an analysed cash flow management can be analysed.

Finally, you can plan strategic management of the cash flow. You can plan how to manage the transactions. It will also help you to create new records and bookkeep the expenses.

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Bank reconciliation saves you time and keeps the entire process straightforward. 

This will make you understand many direct and indirect transactions. It will teach you about your expenses and the right use of them. 

You will be able to know the limitations, loss and profit, fraudulent expenses, and other errors that are made. 

A complete perception of the comparison of the recorded statements will give you an idea of how everything is being processed and worked out. 

You can plan new strategies, schedules, steps, and other implementations for a more functioning company profile. 

This can make you achieve a higher expense graph, which will lead to a higher economy. 

To conclude, this process is necessary to secure and speculate the thorough financial statement. 

It is not a method of clarification; it is also a procedure for future approaches to quality and progress.

FAQs related to Reconciliation set up and process at banks

1. How often do I need to reconcile my bank account?

As mentioned before, checking your bank accounts at the end of every month and, if possible, every week is ideal. This will help you to understand if there are any errors, and you can easily rectify them.

Before this reconciliation process, you must ensure that everything is recorded in your record and your bank statement. Once you have this, you are all ready to go.

2. What statements do I have to check in my bank reconciliation process?

To do the bank reconciliation process properly, you will need certain records.

The bank statement: 

You will need the bank statement of your monthly transactions issued by the particular Bank. This will be the initial record with which you will compare your kept financial report.

Company's financial report:

This can be a report, record, or ledger. This will include every transaction that you have done through the company. This record is legitimate; with this, you will be checking the bank statement and making sure both align with each other.

You will also have to maintain certain checks, payments, bills, and receipts that you have received with any payment for further clarification.

3. Are the results of bank reconciliation accurate?

Yes. Definitely. You will be checking with some of the legitimate records of your finances. One person and an entire organisation completely record these. Both the records, including the personal ledger and the bank statement, are completely organised and accurate. So, when both of them are compared, you will, without a doubt, get an accurate result which will lead you to gain an analysis of your expenses. Thus, you can completely go through this process leading to precise and honest results. With this process, you can also attain a perspective that will be useful for further decision-making. This procedure will play a prominent role in your financial adjustments and growth.

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