Bank Reconciliation, How to do one

hello and welcome to episode 26 of the Irish bookkeeping and payroll podcast I am your host Nielsen Denver and in this show bank reconciliation and how to do one what is a bank reconciliation and what is the purpose of performing a bank reconciliation when you perform a bank reconciliation you are ensuring that all the bank payments and bank receipts that appear on the bank statements you receive from your bank that all these transactions are also recorded in your accounts software you are also checking that every bank payment and bank receives is recorded in the correct bank account setup first in your accounts offer you may have recorded every bank payment and bank receipt but if you have two bank account sir or more you need to ensure that only transactions for a bank account one records in your account software in bank accounts number one nominal ledger code and that bank account number two that its transactions are only recorded in bank account number two nominal ledger code and so on for each bank account you have if we did not check that all the bank payments and our bank receipts were recorded we could not be sure that all income and expenses were then showing in the financial reports if a check was written and paid taxes and we did not record that payment in our account system then the amount field to the taxman would be overstated in our account system also in a bank reconciliation we can find errors such as the amount written on the check stub is different to what is showing on our bank statement this could be a mix of put the digits such as recording a hundred and sixty nine as 196 are someone fraudulently writing 100 euros on the stub when a fact that check is made out from 1000 euros or if we did not record a payment made to a supplier on our accounts offer we could end up overpaying the supplier in the future the bank reconciliation also helps us find checks written but not yet cleared through our bank this is important for cash flow if we write a check to a supplier for 1000 euros and our supplier claims to have lost it we can check and see how's the cheque being marked off as reconciled that is has the payments made been found on the bank statement and also found in our account software if so we have reconciled this payment as being bought on our bank statement and in our accounts offer by doing a bank reconciliation we know whether a check has been cashed or remains uncashed by knowing what has not been cashed our another term has not been presented to our bank for cashing we know what the value of this check will still have to come out of our bank account in the future so if we have 1000 euros in our bank account at the end of the month but a check for 400 euros as now see has been presented to our bank we really only have 600 euros available to us to pay out to other suppliers the 600 euros is the 1000 euro in our bank account but taking into account the 400 euros we still have to pay out so 1,000 URLs less 400 equals 600 so our bank reconciliation helps us find errors and missing payments and receipts so how do we do a bank reconciliation statement let's start with a manual paper system we have our bank payments day book and our bank receipts day book combined together these are commonly called the cash book bank payments include any type of payment paid out of our bank account bank receipts include any type of money received into our bank account our bank statement received from our bank usually has five columns the dates the bank process the transactions column on the details of the transaction eg the cheque number is column two the third column is to display the value of the payment the fourth column is to display the value of the receipt and the fifth column is a running total showing the balance in your bank account at the end of each day we next take out our bank statement and start matching our reconciling the first payment on the bank statement by trying to find its equivalent transaction in the bank payment a book if the amount for about the value on the bank statement agrees with the value in the day book then both these transactions can be marked off as reconciled it is common practice to place the letter B beside both values to indicate that the values have been reconciled the B indicates that the value has been reconciled with the bank statement you do this for each transaction on the bank statement what can happen is that some transactions usually check payments are found not to have the letter B marked against them this indicates that these checks have not yet been presented to our bank for payment this is not unusual this indicates that checks have been written for with the time taken for the check to be posted delivered and lodged by the suppliers to their bank account it may not appear on your bank statement for some days all these unpresentable be listed as they will be used to complete the bank reconciliation but Bank receipts enlargements it could happen that why the license might be made physically to the bank one day it may not be until the next day that your bank processes it so it may happen that a lodgment is on presented according to your bank statement you may have made the lodgement on a Friday afternoon but the bank did not processes until the following Monday morning also now with credit card machines in greater use it is more normal now to see the value of credit card payments for customers showing up on your bank statement a day later than the day of the payment as the process of processing credit card tractions takes place late at night and so the payments don't get your account until the next day also some credit card companies such as American Express can take longer to lodge the proceeds of credit card sales into your bank account and so some credit card transactions will be shown as outstanding are unprecedented and not marketing to B after you've gone through the your bank statement so you list these receipts that have not appeared on your bank statement you now should have 4 values 1 the balance on your bank statement that your your bank says you should have a list of check payments that have not yet been presented to your bank and a list of receipts that have not yet shown up on your bank statement the fourth value is the amount in your bank account in your nominal ledger your bank account has recorded every payment and receipt and so the amount in this account is the true value of the amount of money available your business in order to reconcile the balance in your bank account to the balance in your bank nominal ledger you need to perform the following tasks 1 prepare a summary bank nominal ledger account this is done by taking the closing bank nominal ledger balance and adding to the total of your receipts day book for this month and then subtracting the total of the bank payments day book for this month to give you the balance as per your bank and nominal ledger account then 2 we prepare a bank reconciliation statement this is done by taking the balance as per your bank statement and then adding to this the value of the list of receipts that have not yet shown up in your bank statement and subtracting the list of check payments that have not yet been presented to your bank the value now calculated should be the same as the value you calculated in your summary Bank and nominal ledger account if these two values do not agree then there is a mistake somewhere that you must find until you find that difference the bank account is not reconciled the bank reconciliation is a time-consuming procedure and does require concentration and complete accuracy you must ensure that you do not miss read a value on a bank statement or in a day book as once you take off an amount as reconciled it will be very hard to find an error once a value has been ticked off when it should not have been to find this type of error you may have to start at the beginning again a video version of this podcast can be found on YouTube on the help for bookkeepers YouTube page at for bookkeepers is all one word and again thanks for listening

1 thought on “Bank Reconciliation, How to do one

  • thank you very much! this question was doing my head in, and your method was extremely helpful, couldn't do it without you THANKS 🙂

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