Bank Reconciliation

Bank reconciliation is a critical accounting process that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. The goal is to identify any differences between the two records and to make adjustments to the accounting records as needed. Regular bank reconciliation helps ensure cash records are accurate, detect fraud, and manage cash flow effectively.

What is Bank Reconciliation?

Bank reconciliation involves matching the transactions recorded in your company's cash account in the general ledger (your journal records) with the transactions shown on your bank statement. Differences can arise due to:

  • Deposits in Transit: Deposits recorded by the company but not yet by the bank.
  • Outstanding Checks: Checks issued by the company but not yet cashed by the recipient.
  • Bank Service Charges: Fees charged by the bank, not yet recorded by the company.
  • Interest Earned: Interest paid by the bank, not yet recorded by the company.
  • Non-Sufficient Funds (NSF) Checks: Checks deposited by the company that bounced.
  • Errors: Mistakes made by either the company or the bank.

How Bank Reconciliation Works in LeapCount

LeapCount provides a streamlined process to help you reconcile your bank accounts efficiently.

1. Select Bank Account and Statement Details

To begin a reconciliation:

  • Choose the Bank Account: Select the specific bank account (e.g., "Operating Cash Account," "Savings Account") from your Chart of Accounts that you want to reconcile. This account should correspond to an actual bank account set up under Company Settings / Bank Accounts.
  • Enter Statement Ending Balance: Input the ending balance exactly as it appears on your bank statement for the period you are reconciling.
  • Enter Statement Ending Date: Specify the closing date of the bank statement.

2. Match Transactions

LeapCount will then display:

  • Book Side (Your Journal Records): Transactions (deposits/credits and checks/debits) recorded in your LeapCount general ledger for that bank account up to the statement ending date.
  • Bank Side (To be Matched): Initially, this side reflects the information you're matching against.

You will then go through your bank statement item by item and compare it to the transactions listed in LeapCount:

  • Cleared Checks and Payments: Mark checks and other payments in LeapCount that have cleared the bank (appear on your bank statement).
  • Cleared Deposits and Credits: Mark deposits and other credits in LeapCount that have been processed by the bank.

3. Identify and Address Discrepancies

As you match transactions, LeapCount helps you identify discrepancies:

  • Unmatched Items: Transactions on your books not yet on the bank statement (e.g., outstanding checks, deposits in transit) will remain unmarked.
  • Bank-Only Items: Transactions on the bank statement not yet on your books (e.g., bank fees, interest earned, direct debits you weren't aware of) need to be recorded in LeapCount. You can typically create new journal entries directly from the reconciliation screen for these items.

The goal is to reach a point where the "adjusted bank balance" (bank statement balance +/- items cleared/outstanding) equals the "adjusted book balance" (your ledger balance +/- new entries for bank fees/interest etc.). LeapCount usually shows a "difference" field that should ideally be zero once all items are accounted for.

4. Attach Bank Statement

For auditing purposes and internal records, LeapCount allows you to attach a digital copy (e.g., PDF) of the bank statement you used for the reconciliation. This serves as proof and a reference for the reconciled period.

  • Upload Feature: Look for an option to upload or link the bank statement file to the reconciliation record.

5. Finalize Reconciliation

Once the difference is zero (or any remaining difference is understood and accepted as a timing difference to be resolved in the next period), you can finalize or "post" the reconciliation. This typically:

  • Marks the reconciled transactions in your ledger.
  • Stores the reconciliation report, including the list of outstanding items.

Benefits of Regular Bank Reconciliation

  • Accuracy of Cash Records: Ensures your book balance for cash is correct.
  • Fraud Detection: Can help uncover unauthorized transactions or fraudulent activities promptly.
  • Error Identification: Helps catch bank errors or errors in your own bookkeeping.
  • Better Cash Management: Provides a clearer picture of your actual available cash.
  • Improved Financial Reporting: Leads to more reliable financial statements.

When to Reconcile

It's best practice to reconcile your bank accounts as soon as you receive your bank statement, typically monthly. The more frequently you reconcile, the easier it is to spot and correct discrepancies.

What's Next?

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