The definition of bank reconciliation is the process of comparing your bank statement with the balance provided by the bank to make sure that all deposits, withdrawals, checks and payments are correctly entered.
Each month’s bank statement begins with the closing balance of the account on the last month’s statement. To reconcile the current months statement add the sums of all the deposits, checks, withdrawals, bank charges and electronic payments made throughout the month.
To check if your records agree with those that the bank keeps, using the balance of your register add or subtract all payments or deposits made on a daily basis to ensure that your balance never drops below zero. At the end of the month, your ending balance in the register should agree with the ending balance on the bank’s monthly statement, after it has been corrected for deposits, checks and charges that have not cleared the bank yet.
If there is a difference in the two balances, go back over every single transaction and check the amount shown on the bank statement with the one recorded by you in the register. Double check your math for each transaction recorded and make sure there are no extra charges or deposits you missed throughout the month.
Missing charges may be explained by bank charges for your account balance dropping below zero at any point during the month. Another place that you may find errors is if you have not recorded automatic withdrawal or payments you have set up with your bank or creditors.
When you are unable to locate an error between your records and the bank statement, contact your local banker and schedule an appointment to go over the statement and have them show you where the error is located. It is rare but possible that the bank has made the error. By performing bank reconciliation each month, you will have a better grasp on your finances and keep your banking records correct.
An example of bank reconciliation is reviewing a checkbook to make sure the balances match the statement provided by the bank.