Balance sheet reconciliation involves four stages: balancing the account against the bank, balancing against the books, comparing bank and book balances, and making necessary adjustments. It ensures bank statements and actual cash match company spending, and is similar to balancing a checkbook.
The balance sheet reconciliation process involves four stages. The steps include: balancing the account against the bank, balancing the account against the books, comparing the bank balance and the book balance, and creating journal entries to make the necessary adjustments. These steps are normally performed by accountants and/or professionals.
Balance sheet reconciliation is necessary to ensure that bank statements and actual cash match the money that was spent, disbursed, or otherwise transferred by the company over a specific period of time, usually a month. On the surface it is a complex process, but once you understand the mechanics, reconciling a balance sheet is simple. In fact, the process is similar to how an individual balances his checkbook at the end of each month.
The first step in balance sheet reconciliation is to balance the account according to the bank. This means that the person performing the reconciliation must obtain a copy of the statement for the month in question. He must therefore ensure that all deposits and debits made through the bank are the same as those listed on the statement at close of business on the day the statement was printed.
Part of this first step is comparing the checks that have been drawn and cashed with the amounts the bank has cashed. The person reconciling the information should also account for any checks that have not yet been cashed or have otherwise not appeared on the balance sheet. Once this is done, the second phase of the balance sheet reconciliation process can begin.
The second step of the balance sheet reconciliation process is to balance the account against the books. Here, the individual will take the checks that have been written and the deposits that have been made based on the financial records on file and attempt to reconcile them to ensure that the final amount posted based on the company’s financial records is the same as it should be. . To determine if this number is correct, the recorded number will be compared to the final amount recorded at the beginning of the month after adding any deposits and subtracting any debits or checks that were drawn from the account through the end of the month .
Once you’ve calculated the bank’s final amount and the company’s final amount, the third step is to compare the two to make sure the balances are the same. This involves ensuring that the bank’s and company’s financial records are correct and show the same amount of deposits, withdrawals, and other activities. Finally, in the fourth stage, the individual reconciling the account can enter any journal entry as to why there were differences or what else was discovered as discrepancies for that time period.
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