Managing your money effectively is key to financial health, whether you're an individual or a business owner. One of the most fundamental practices for ensuring your financial records are accurate is performing a bank reconciliation. This article will guide you through the process of How to Write a Bank Reconciliation, explaining its importance and providing practical examples so you can master this essential skill.
The Basics of How to Write a Bank Reconciliation
At its core, a bank reconciliation is a process of comparing your financial records to your bank's statement to identify any discrepancies. This involves ensuring that the balance shown in your checkbook or accounting software matches the balance reported by your bank. Understanding how to write a bank reconciliation is vital because it helps detect errors, prevent fraud, and maintain accurate financial reporting. Without it, you might be unaware of missing funds or incorrect charges, leading to potential financial problems.
Here's a general outline of the steps involved:
- Gather your bank statement and your own financial records (check register, accounting software).
- Identify outstanding checks (checks you've written but haven't cleared the bank yet).
- Identify deposits in transit (deposits you've made that haven't yet appeared on your bank statement).
- Note any bank service charges or fees that appear on your statement but not in your records.
- Look for any interest earned on your account that might be missing from your records.
- Account for any errors you or the bank may have made.
Once you have all this information, you'll make adjustments to both your book balance and your bank statement balance until they match. The goal is to arrive at an adjusted balance that is the same for both.
Example: How to Write a Bank Reconciliation When You Discover Unrecorded Bank Fees
Subject: Bank Reconciliation Adjustment - Unrecorded Fees
Dear Accounting Department,
This email is to document a necessary adjustment to our bank reconciliation for the period ending [Date]. During the reconciliation process, it was discovered that our bank statement shows a service fee of $15.00, which was not recorded in our internal accounting records.
Therefore, to correctly reflect our financial position, we will be reducing our book balance by this $15.00 service fee. This ensures that our accounting records align with the actual balance reported by the bank. We will make sure to record this fee promptly in our system moving forward.
Sincerely,
[Your Name/Department]
Example: How to Write a Bank Reconciliation After Noticing an Unrecorded Deposit
Subject: Bank Reconciliation Update - Missing Deposit
Dear Finance Team,
I am writing to inform you of an adjustment needed for our bank reconciliation for the month of [Month]. Our bank statement shows a deposit of $500.00 that has not yet been reflected in our internal records. This likely represents a customer payment received just before the end of the statement period.
To accurately reconcile our accounts, we will be adding this $500.00 deposit to our book balance. This adjustment brings our internal records in line with the bank's reporting and ensures we have a correct view of our cash on hand.
Best regards,
[Your Name/Department]
Example: How to Write a Bank Reconciliation for an Outstanding Check
Subject: Bank Reconciliation - Outstanding Check Adjustment
Dear Accounts Payable,
This notification concerns a check we issued, Check Number 1234 for $75.50, dated [Date], which appears as outstanding on our latest bank reconciliation. As of the statement closing date, this check has not yet cleared the bank.
For the purpose of our bank reconciliation, we will continue to show this check as outstanding. It will be deducted from our book balance when comparing it to the bank statement balance. We anticipate it will clear in the next statement cycle.
Thank you,
[Your Name/Department]
Example: How to Write a Bank Reconciliation Due to an NSF (Non-Sufficient Funds) Check
Subject: Bank Reconciliation Alert - NSF Check Received
Dear Sales Department,
We have received notification from the bank regarding an NSF (Non-Sufficient Funds) check from a customer, [Customer Name], in the amount of $200.00. This check was previously recorded as a deposit but has been returned by the bank.
For our bank reconciliation, this means we need to deduct the $200.00 from our book balance, as the funds are not available. We will also need to follow up with [Customer Name] to arrange for payment. Please update your records accordingly.
Regards,
[Your Name/Department]
Example: How to Write a Bank Reconciliation for a Bank Error
Subject: Bank Reconciliation - Correction of Bank Error
Dear Bank Customer Service,
I am writing to report a potential error on our bank statement dated [Date]. Our records indicate a deposit of $1,000.00, but the statement shows only $100.00. This discrepancy requires correction for our bank reconciliation.
We kindly request that you investigate this matter and adjust our account accordingly. For our internal reconciliation, we have added the missing $900.00 to our book balance, assuming the deposit was indeed $1,000.00. Please confirm the correction at your earliest convenience.
Sincerely,
[Your Name/Company Name]
Example: How to Write a Bank Reconciliation for Interest Earned
Subject: Bank Reconciliation Update - Interest Income
Dear Accounting Team,
During our review of the bank statement for [Month], we noted that interest earned on our account amounted to $25.75. This amount was not previously recorded in our accounting system.
To accurately reflect our financial position, we will be adding this $25.75 in interest income to our book balance as part of the bank reconciliation process. This ensures that all income is properly accounted for.
Best regards,
[Your Name/Department]
Example: How to Write a Bank Reconciliation for a Voided Check
Subject: Bank Reconciliation - Adjustment for Voided Check
Dear Accounts Payable,
This email is to inform you that Check Number 5678, originally issued for $150.00 on [Date], has been voided. This check was recorded in our system, but it will not be presented to the bank for payment.
For our bank reconciliation purposes, we will be adding back the $150.00 to our book balance. This adjustment is necessary because the check will not decrease our available funds. Please ensure your records are updated accordingly.
Sincerely,
[Your Name/Department]
Example: How to Write a Bank Reconciliation for a Stop Payment Order
Subject: Bank Reconciliation - Stop Payment Order Confirmation
Dear Finance Department,
This confirms that a stop payment order has been placed on Check Number 9012 for $300.00, dated [Date]. This check will not be honored by the bank.
In our bank reconciliation process, we will add $300.00 back to our book balance to reflect that these funds were never disbursed. This ensures our cash balance accurately represents the funds available.
Regards,
[Your Name/Department]
Mastering How to Write a Bank Reconciliation is not just a tedious accounting task; it's a proactive step towards maintaining the integrity of your financial data. By regularly comparing your records with your bank statements and diligently accounting for any discrepancies, you gain a clearer understanding of your financial standing, identify potential issues before they escalate, and build a solid foundation for sound financial decision-making. Make bank reconciliation a consistent part of your financial routine, and you'll reap the benefits of accuracy and control.