Bank Reconciliation: A Quick Guide for Accounting and Payroll Administrator Students

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When all of a company’s checking account information—like transaction records, customer receipts, and written cheques—is submitted to the bank, the bank drafts a statement which is sent back to the accounting department of the company. Company bank statements include all of the activity that occurs in the company’s bank account for the month, as well as deposits, service charges and other important items like an account’s balance.

When a bank balance comes in, accounting professionals compare it to a company’s general ledger in order to ensure everything actually balances. This process is referred to as bank reconciliation. If the accounting team notices any differences between the bank statement and their records, they make the necessary changes to the books. Because companies typically make many transactions each month, bank reconciliations are a necessary part of keeping the books balanced.

If you’re planning to pursue a career in accounting, read on to learn more about the process of bank reconciliation, as well as key terminology that’s often used within the industry.

Accounting and Payroll Administrator Graduates know How Bank Reconciliations are Prepared

Once you complete your accounting training and begin preparing bank reconciliations for a company, you’ll notice that the bank account balance and company cash balance records often do not match up. This is not out of the ordinary and usually occurs when a company has multiple payments and deposits in transit. Additionally, banks charge service fees for processing cheques and recording deposits, and penalties (usually for overdrafts) which will also appear on a bank statement.

Since companies are generally responsible for making a lot of transactions, as well as paying bank fees and other charges, regularly preparing bank reconciliations is essential. Bank reconciliations are also very useful for detecting fraudulent activity in bank accounts.

Preparing bank reconciliations involves reviewing a company’s cash balance and adding any deposits in transit from the company to the bank. You’ll then add or subtract other items—like cheques that haven’t yet cleared the bank, for example—to ensure that the bank statement and cash records match up.

Bank reconciliations involve skimming over the month's details

Bank reconciliations involve skimming over the month’s details

Important Terminologies You’ll Learn During the Accounting and Payroll Administrator Program

While enrolled at accounting college, you’ll learn many new terms that you will use often during your career. Here are a few terms that apply to performing bank reconciliations:

Deposit in transit refers to cash or cheques that have been recorded by your accounting department, but not yet received or recorded in the bank records. When this happens at the end of an accounting period, these transactions won’t be included on the bank statement and will be an item in the bank reconciliation.

Outstanding cheques are cheques that will be on accounting records, but haven’t yet cleared bank processing, and therefore won’t affect the company’s balance. These also need to be included in bank reconciliations.

NSF (non-sufficient funds) cheques are cheques that have been issued by a company when its bank account doesn’t have enough funds to cover the cheques. When an NSF occurs, both the company, and the person attempting to deposit the cheque will be charged a fee.

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