What are Three Methods of Bank Reconciliation?

Starting a new business or running an established one, bookkeeping and bank reconciliation are crucial for the growth and sustainability of your business. Keeping an eye on the expenses, profits, and losses is essential if you want to progress in your business. Don’t worry if you don’t know what bank reconciliation is and what are the three methods of bank reconciliation. This article is for you to read and improve your bookkeeping strategies.

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What are the Three Methods of Bank Reconciliation in the UK?

Bank reconciliation is the process of comparing your bank statement with the office accounts register. The comparison is made to make sure that both records are aligned and that the balance at the end of both records is the same. Accountants are hired by companies and businesses to do bank reconciliation; however, nowadays automated software is also available to make bank reconciliation easy and quick. Bank reconciliation is important to check for any fraudulent transactions done by the employees or any unclear payments.

What are the Types of Bank Reconciliation?

Bank reconciliation can be done by various methods. The three methods of bank reconciliation are explained below.

1- Adjusted balance method

In this method, the entries in both records are compared and reconciled. Accountants check entries that don’t match and try to find the reason for misalignment. The misalignment can occur due to

• In-transit deposits
• Unclear checks
• Bank service charges
• Due payments that are not paid yet
• Incorrect entry
• The accountants find the reason for misaligned entries and make the required adjustments to align the entries in both records.

2- Bank statement method

In the bank statement method, the accountants align the entries of bank statements with office records. In this method, they adjust the bank statement according to the office accounts register. the adjustments made are:

• Remove unclear checks from the bank statement
• Removing bank service charges
• Remove any in-transit deposits that are yet to be cleared
• Add the due payment amount to the bank statement that will be paid to the company.
• By adjusting the bank statements, accountants make sure that the balance of both records is the same.

3- Balance sheet method

The bank balance sheet method is basically an amalgamation of the adjusted balance method and the bank statement method. In this method, the balance sheet is compared. The entries are compared, and accountants look for any discrepancy in the amount entered. The discrepancy can be in the form of incorrect entry, illegal transactions, bank service charges, outstanding cheques and in-transit deposits. The balances in both records are compared and adjusted to have the same balance at the end.

Visit our more detailed guide on what is bank reconciliation, we have covered in-depth knowledge of bank reconciliation over there.

The Bottom Line

Bank reconciliation is important in running your business efficiently. Having knowledge of what are the three methods of bank reconciliation is essential for transparency in your company business, cash flow, tax filing, and building strong client relationships. It depends on you, which method suits you best depending upon the number of employees you have and the size of your company, whether it is a small or medium-sized business.