Reconciling Your Bank Accounts

Reconciling Your Bank Account(s)

An organization should reconcile or “balance” its cash balance to the bank statement on a monthly basis. A bank reconciliation is the process of matching the incoming and outgoing cash transactions in an organization’s records (i.e., general ledger) to those on the bank statement for a given period of time.

Performing bank reconciliations on a monthly basis provides the following benefits:

• Errors, missing transactions, and/or fraud are identified and corrected on a timely basis

• An accurate picture of how much cash an organization has available for operations

How to Perform a Bank Reconciliation

Items needed:

• Bank statement

• General ledger of all cash activity for the month being reconciled (e.g., checkbook, deposit slips and/or general ledger activity if using accounting software)

• Balance per your general ledger (“expected balance”) as of the bank statement date

Steps: Using an accounting software, spreadsheet program such as MS Excel, or paper, perform the following steps: 

Compare the deposits -Record any deposits on the bank statement missing from your general ledger or records and add the amount(s) to the expected balance.  Identify any deposits in your general ledger missing from the bank statement. Subtract the amount(s) from the expected balance and investigate why the transaction(s) may be missing. A common reason could be a timing difference caused by a deposit in-transit, where the deposit was received at the bank after the cutoff date of the statement.

Compare the withdrawals - Record any payments missing from the bank statement and subtract the amount(s) from the expected balance. Investigate any withdrawals listed in your records but missing from the bank statement. Subtract any outstanding checks or withdrawals found on your list but not on the bank statement from the bank balance Similar to deposits, a common reason may be a timing difference, where a payment may not have cleared the bank or cleared prior to the statement cutoff date.

Compare the new expected general ledger balance to the bank statement -  Do they match? If the answer is no, review the deposits and withdrawals again to determine what is missing. Check to see if you included bank adjustments such as bank service fees, or interest earned during the statement period.

All discrepancies found in the reconciliation need to be researched and resolved. In addition, consider any procedures or process improvements that could be implemented to detect or prevent future discrepancies. This may be frustrating at first, but it gets easier with practice. It will also teach you the importance of discipline in recording your deposits, checks, and withdrawals inside your accounting system, be it on paper or software.