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Bank Reconciliation Process

Updated: Mar 16

Date: March 4, 2024

by: Sonia Lee Ng, CPA

man with pen writing on a document
bank document

Bank reconciliation is considered a detective internal control since it verifies the existence and valuation of cash by comparing it to a third party source. This tool also may detect fraud due to misappropriation of cash. To ensure the accuracy of your financial records and detect errors and discrepancies on a timely basis, it is important to perform bank reconciliations. It is recommended to reconcile the bank on a monthly basis. Here is a quick guide on how to reconcile your business bank account:

  1. Gather your bank statements: You may log into your bank's website and download your most recent bank statement according to the period you are reconciling.

  2. Update your accounting records: a. Log in to your accounting software or access your manual bank reconciliation worksheet or spreadsheet. b. Make sure all transactions are recorded and up to date in your accounting software: deposits, withdrawals, checks and electronic transfers and credits.

  3. Start the bank reconciliation process: In your accounting software, go to the bank reconciliation tool or if reconciliation is done manually, go to the bank reconciliation worksheet.

  4. Enter Ending Balance: a. From the bank statement obtained from the bank, obtain the ending balance provided. b. Enter such balance in the reconciliation tool of your accounting software or your manual reconciliation worksheet.

  5. Compare transactions in book and in banks: Tick and tie: Go through each transaction, mark items (in your accounting software or your bank reconciliation spreadsheet) that match between your bank statement and accounting records. If you are using a spreadsheet, you can mark transactions cleared by bank with a specific color. This will ensure that you don't overlook any transactions during the reconciliation process.

  6. Identify discrepancies: Note any discrepancies or differences between your bank statement and the accounting records. Review discrepancies and investigate further. a. Outstanding checks or outstanding deposits that haven't cleared the bank yet. b. Bank fees or bank service charges that are not yet recorded in the accounting system. c. Deposits and withdrawals recorded in the bank statement but not yet recorded in your accounting records. d. Errors in recording transactions: amount errors, errors in date entry, etc.

  7. Make adjustments for discrepancies found: If you find discrepancies, adjust your accounting records to record missing transactions. a. Record transactions that are recorded in bank but not yet recorded in books b. Verify if transaction was not misclassified and charged to another bank account number in the general ledger. c. journal entries to correct errors, if applicable.

  8. Reconcile the ending balance: After adjustments are prepared, compare the adjusted book balance to the ending balance per bank statement. These two balances should match.

  9. Finalize the bank reconciliation: Once there is no difference between the adjusted book balance and the ending bank balance, you can finalize the reconciliation process in your accounting software by clicking done, reconcile, depending on the software. If you are using a spreadsheet, you may save the spreadsheet and update the format of the document to have it ready for printing.

  10. Save and print your bank reconciliation Keep a record of your bank reconciliation for future reference or audit request. This documentation provides evidence that this process is being performed as part of the efforts to ensure accuracy and completeness of financial statements.

  11. Update the reconciliation file: a. If you keep your bank reconciliations in an electronic format, save the completed bank reconciliation in the corresponding bank reconciliation file. b. If you keep your bank reconciliations in a paper format. Print the bank reconciliation, the bank statement and supporting documents, include the signature of preparer and the date and include them in the paper format binder.

  12. Repeat the bank reconciliation process on a monthly basis

If you have further questions or need a consultation, please contact us.

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