Bank reconciliations. You know you should do them, but why? What is a bank reconciliation? What should you look at after you have performed a bank reconciliation? How often should reconciliations be done?
What is a Bank Reconciliation?
A bank reconciliation is a comparison of what the bank says your balance is to what your accounting says your balance is. Most accounting systems have a reconciliation feature built in the software. During a reconciliation you match the deposits and withdrawals on the bank statement to the deposits and withdrawals in your accounting records.
If you discover transactions that have cleared the bank but are not in your accounting records, you will want to verify that they are valid. Once you verify the transactions, you will need to enter them into your accounting system and match them using the reconciliation feature.
The Accounts Balance – Now What?
One of the most important steps comes after you match the bank deposits and withdrawals to the accounting deposits and withdrawals. This step is to look at all of the uncleared transactions to see if they are valid.
If you discover an uncleared deposit, you will want to verify that the deposit did indeed post to your account. If not, you will want to determine why and take steps to resolve this. If you discover an uncleared check or other bank withdrawal, you will want to verify that the payment was received by your vendor.
I always take what I call a “reasonableness” test. Is the uncleared deposit or withdrawal dated close to the cut-off date of the bank statement? If so, then it may be “reasonable” that the item is indeed in transit. However if the uncleared deposit or withdrawal is date some time before the cut-off date of the bank statement, it may NOT be “reasonable” for it to be outstanding and inquiry needs to be made about the transaction. This may mean that you need to correct your accounting records, that you need to issue an replacement check or that you have a duplicate entry in your accounting records.
How Often Should Reconciliations Be Done?
Traditionally, bank reconciliation are done every month.
Now That You Are Ready to Reconcile
Bank reconciliations are an important way to verify that your accounting records are accurate. Performing a bank reconciliation can help you have confidence that your bank balance in your accounting system is accurate.
We love doing bank reconciliations! Let us know if you would like our assistance in doing your bank reconciliations. We perform literally hundreds of reconciliations every month. We are good at troubleshooting reconciliation issues, catching reconciliations up, and provide training on how to do reconciliations.