After adjusting the balance as per the cash book, you’ll need record all adjustments in your company’s general ledger accounts. When your balance as per the cash book does not match with your balance as per the passbook, there are certain adjustments that you have to make in how to calculate variable overhead efficiency variance order to balance the two accounts. Ideally, you should run a reconciliation each time you receive the statement from your bank. The bank may send you a bank statement at the end of each month, each week, or, if your business has a large number of transactions, they may even send one at the end of each day.

With bank statement in-hand, you can systematically check off matching transactions one-by-one by clicking their boxes. The bottom of the screen contains a running total of items you have checked off, and thus have been reconciled. This is useful for comparing the totals in your books to the totals on your bank statement. Once you determine the differences between the balance as per the cash book and the balance as per the passbook, you’ll need work out the balance as per the bank portion of the bank reconciliation statement. When your business receives checks from its customers, these amounts are recorded immediately on the debit side of the cash book so the balance as per the cash book increases. However, there may be a situation where the bank credits your business account only when the checks are actually realised.

Compare your bank statements

Keeping your financial records in order is hugely important to the success of your business. Read the steps you should take when closing out your small business’ books for the end of the fiscal year. Give your accountant direct access to your books so she can find the reports and information she needs when questions arise.

Adjusting Journal Entries

An outstanding check refers to a check payment that has been recorded in the books of accounts of the issuing company, but has not yet been cleared by the bank as a deduction from the company’s cash balance. To reconcile means to “make one view or belief compatible with another.” In accounting, that means making your account balances equal to one another. More specifically, a bank reconciliation means balancing your bank statements with your bookkeeping.

1. This document will make auditors aware of the reconciled information at a later date.
2. For example, you wrote a check for $32, but you recorded it as $23 in your accounting software.
3. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month.
4. Access your cash flow statement, balance sheet, and profit and loss statement in just a few clicks.
5. And as a result, it gets easier to ascertain the correct balance in the balance sheet.
6. Finally, compare your adjusted bank balance to your adjusted book balance.

If your beginning balance in your accounting software isn’t correct, the bank account won’t reconcile. This can happen if you’re reconciling an account for the first time or if it wasn’t properly reconciled last month. If you reconciled a transaction by mistake, here’s how to unreconcile it. If you adjusted a reconciliation by mistake or need to start over, reach out to your accountant.

Step 4: Make Sure the Balance As Per the Bank Matches the Balance As Per the Cash Book

It is up to you, the customer, to reconcile the cash book with the bank statement and report any errors to the bank. Just like balancing your checkbook, you need to review your accounts in QuickBooks to make sure they match your bank and credit card statements. Just like balancing your checkbook, you need to review your accounts in QuickBooks to make sure they match your real-life bank and credit card statements. When you finish reconciling accounts, QuickBooks automatically generates a reconciliation report. It summarizes the beginning and ending balances, and it lists which transactions were cleared and which were left uncleared when you reconciled.

In QuickBooks, you have the option to make an adjusting entry if the difference isn’t zero when you are finished reconciling. However, adjusting entries should be made only as a last resort for small amounts. There are several reports – such as the The Reconciliation Discrepancy Report, the Missing Checks Report, and the Transaction Detail Report – that can help you identify discrepancies quickly. Therefore, such adjustment procedures help in determining the balance as per the bank that will go into the balance sheet. Not-sufficient funds (NSF) refers to a situation when your bank does not honour a check, because the current account, on which the check is drawn, has insufficient funds.

Add bank-only transactions to your book balance

At times, the balance as per the cash book and passbook may differ due to an error committed by either the bank or an error in the cash book of your company. There are times when your business will deposit a check or draw a bill of exchange discounted with the bank. These deposited checks or discounted bills of exchange drawn by your business may get dishonored on the date of maturity. As a result, the bank debits the amount against such dishonored cheques or bills of exchange to your bank account. It is important to note that it takes a few days for the bank to clear the checks. This is especially common in cases where the check is deposited at a different bank branch than the one at which your account is maintained, which can lead to the difference between the balances.