One of the first things you should do when you start a business is open a separate checking account, just for the business.
If you deposit all of your income into this account and pay all of your expenses from this account, this will serve as a foundation for your books.
You should keep your business
account separate from your personal
checking account. The business
checkbook is your basic source of
information for recording your
business expenses. You should
deposit all daily receipts in your
business checking account. You
should check your account for errors
by reconciling it.
Consider using a checkbook that
allows enough space to identify the
source of deposits as business
income, personal funds, or loans.
You should also note on the deposit
slip the source of the deposit and
keep copies of all slips. You should
make all payments by check to
document business expenses.
checks payable to yourself only when
making withdrawals from your
business for personal use. Avoid
writing checks payable to cash. If
you must write a check for cash to
pay a business expense, include the
receipt for the cash payment in your
records. If you cannot get a receipt
for a cash payment, you should make
an adequate explanation in your
records at the time of payment.
Use the business account for
business purposes only. Indicate the
source of deposits and the type of
expense in the checkbook.
RECONCILING THE CHECKING ACCOUNT
When you receive your bank
statement, make sure the statement,
your checkbook, and your books
agree. The statement balance may not
agree with the balance in your
checkbook and books if the
Includes bank charges that you did
not enter in your books and subtract
from your checkbook balance, or
Does not include deposits made
after the statement date or checks
that did not clear your account
before the statement date.
By reconciling your checking
account, you will:
Verify how much money you have in
Make sure that your checkbook and
books reflect all bank charges and
the correct balance in the checking
Correct any errors in your bank
statement, checkbook, and books.
You should reconcile your
checking account each month.
Before you start to reconcile your
monthly bank statement, check your
own figures. Begin with the balance
shown in your checkbook at the end
of the previous month. To this
balance, add the total cash
deposited during the month and
subtract the total cash
disbursements. After checking your
figures, the result should agree
with your checkbook balance at the
end of the month. If the result does
not agree, you may have made an
error in recording a check or
deposit. You can find the error by
doing the following.
(1) Adding the amounts on your check
stubs and comparing that total with
the total in the "amount of check"
column in your check disbursements
journal. If the totals do not agree,
check the individual amounts to see
if an error was made in your check
stub record or in the related entry
in your check disbursements journal.
(2) Adding the deposit amounts in
your checkbook. Compare that total
with the monthly total in your cash
receipt book, if you have one. If
the totals do not agree, check the
individual amounts to find any
If your checkbook and journal
entries still disagree, then
refigure the running balance in your
checkbook to make sure additions and
subtractions are correct. When your
checkbook balance agrees with the
balance figured from the journal
entries, you may begin reconciling
your checkbook with the bank
statement. Many banks print a
reconciliation worksheet on the back
of the statement.
To reconcile your account, follow
(1) Compare the deposits listed on
the bank statement with the deposits
shown in your checkbook. Note all
differences in the dollar amounts.
(2) Compare each canceled check,
including both check number and
dollar amount, with the entry in
your checkbook. Note all differences
in the dollar amounts. Mark the
check number in the checkbook as
having cleared the bank. After
accounting for all checks returned
by the bank, those not marked in
your checkbook are your outstanding
(3) Prepare a bank reconciliation.
(4) Update your checkbook and
journals for items shown on the
reconciliation as not recorded (such
as service charges) or recorded
At this point, the adjusted bank
statement balance should equal your
adjusted checkbook balance. If you
still have differences, check the
previous steps to find errors.
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