What is the Adjusted Balance on the Bank Reconciliation?
Businesses and companies refer to bank reconciliation for accounting purposes. Bank reconciliation ensures that the transactions and cash flow are transparent in your business. When the balances in the bank statement and company account register don’t match, then there is a need to do a balance adjustment. Are you facing the problem of balance adjustment in your bank reconciliation process? Then here we enlist all the details necessary for adjusted balance in bank reconciliation.
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What is the Adjusted Balance in Bank Reconciliation in the UK?
Bank reconciliation involves a comparison of bank statements and company account registers for auditing the transactions done throughout the year. Bank reconciliation helps in filing taxes at the end of the year. For bank reconciliation to go smoothly, the company office should have all the required documents and receipts for transactions so that the correct payable tax amount is estimated. If the company loses receipts, then it might end up paying more tax than due. To get the bank reconciliation working, you should:
- Get the bank statement from the bank
- Get the company transaction record from the accountant’s office.
- Compare the entries on both records.
- Adjust the balance on the bank statement
- Adjust the balance on the company records register
- The balances in both records should be the same.
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The Balance Adjustment in Bank Reconciliation
Most of the discrepancies in the transactions are removed by the adjustment of balance in the bank statement and company accounts register. The adjusted balance in bank reconciliation is achieved by
1- Deducting bank fee charges
Sometimes bank statements show more balance in the bank statement due to the addition of bank fee charges with each transaction. Accountants need to deduct the additional charge to get the actual transaction amount which is also written in the company accounts register.
2- Removing outstanding cheques
The outstanding cheques that are added in the bank statement are removed during the bank reconciliation process. This is because the amount on outstanding cheques is never received by the company.
3- Adding in-transit amounts
The in-transit amounts are those that are still in the process of transferring. Since these amounts are in transition, they are not added to the bank statement. Accountants need to figure out the in-transit amounts and add them to the bank statement since these amounts are already added in the company account register but missing in the bank statement.
4- Add the interest
On some accounts, companies earn interest. Sometimes the interest is missing in the bank statement or company account register. During the bank reconciliation process, add the interest earned during a financial year.
The Formula for Balance Adjustments
The formula used to adjust the balance during bank reconciliation is as follows:
Adjusted Cash Book Balance = Bank Statement Balance + Deposits in Transit – Outstanding Cheques
1- Adjusted cash book balance
The adjusted cash book balance is the amount adjusted in the company accounts register by removing the differences from bank statements. The adjusted cash book balance shows the entries written in the cash book but not yet processed or acknowledged by the bank.
2- Bank statement balance
The bank statement balance is the amount your bank statement is showing. These are the transactions that are processed and completed by the bank.
3- Deposits in transit
The deposits in transit are the amounts that are in the banking process and are yet to be cleared up by the bank.
4- Outstanding cheques
Those cheques that are not cleared by the bank due to low or insufficient balance. NSF is also a form of outstanding cheques.
Why is Adjusted Balance Important?
Balance adjustment in bank reconciliation ensures
- Identification of errors that are otherwise ignored or remain unhighlighted due to human error.
- Identification of any fraudulent activity going on in the cash flow management by the accounts department.
- Maintenance of accurate records. However, periodic balance adjustment is important regularly.
- Preparation for audits at the end of the financial year helps to track cash flow.
Conclusion
Adjusted balance in bank reconciliation is a crucial part of the bank reconciliation procedure. Balance adjustment is done by deducting bank fee charges, removing amounts of outstanding cheques, adding in-transit deposits, and adding any interest amount given by the bank. These adjustments ensure that the ending balance on the bank statement matches the company account register. Periodic balance adjustment ensures transparency in cash flow. It helps businesses to grow and helps plan future strategies by tracking cash flow.
Disclaimer: All the information provided in this article on adjusted balance on the bank reconciliation, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.