How to reconcile a bank statement
/What is a Bank Statement?
A bank statement is a document that is issued by a bank once a month to its customers, listing the transactions impacting a bank account. The bank statement shows the cumulative ending balance of cash in the account as of the end of each day in the reporting period. Some banks still print these statements along with an accompanying set of images of all cleared checks. Other banks issue an electronic version to customers, to save on printing and mailing costs.
Why Reconcile a Bank Statement?
Reconciling a bank statement involves comparing the bank's records of checking account activity with your own records of activity for the same account. The purpose of doing so is to locate any differences between the two versions, and to update your records to match those of the bank, as well as to spot any errors made by the bank. In brief, a bank reconciliation is needed to ensure that your checking account balance is correct. A detailed year-end bank statement reconciliation is commonly requested by an audit firm as part of its annual audit procedures.
How to Reconcile a Bank Statement
The bank statement reconciliation process is not overly difficult, but it requires you to complete multiple steps, which are noted below. If you do not pay a great deal of attention to each step in this process, it is likely that the reconciliation will result in an unexplained variance.
Step 1. Receive Bank Statement
At the end of the month, you will receive a bank statement from the bank, which itemizes all deposits made into your checking account, as well as all checks that cleared the bank, and a variety of other charges against the account, such as for account servicing fees. There should be a reconciliation form on the back of this statement, which you can use to complete a reconciliation. If it is easier, use your own reconciliation form.
Step 2. Match Book Deposits to Statement
Match each of the deposits in your records to those noted on the bank statement. If you have recorded a deposit that the bank had not yet received during the month, list this deposit as a reconciling item that should be added to the bank's ending cash balance for your account.
Step 3. Match Bank Deposits to Book
Compare the amount of each deposit recorded by the bank to the amount that you recorded. It is possible that the bank rejected a check within a batch of deposited checks, or recorded the amount of a check differently. The amount of a rejected check should be added to the bank's ending cash balance.
Step 4. Adjust Deposit Record or Contact the Bank
If there is a difference in the amount of a check recorded by the bank, you may have made an error in your accounting records. If so, adjust your record of the deposit. If the bank made an error, contact the bank with this information, and include the difference as a reconciling item.
Step 5. Match Bank Checks to Book
Match all checks listed in the bank statement as having cleared the bank to those listed in your check register. Put a check mark next to each check in your check register that matches the checks listed on the bank statement. Also compare the amounts of the checks; if there is a difference between the amount recorded by the bank and your own records, either adjust your records or contact the bank regarding the difference.
Step 6. Identify Uncleared Checks
Make a list of all checks in your check register that have not yet cleared the bank. The total of these uncleared checks is a reconciling item that is a deduction from the bank's ending cash balance for your account.
Step 7. Review Miscellaneous Bank Items
Go through the miscellaneous account debits and credits listed on the bank statement, and verify that you have recorded them in your own records. It is quite possible that none of these items have been listed, so be sure to adjust your cash balance for these items before proceeding. Examples of miscellaneous items are fees for bounced checks, overdraft charges, account maintenance fees, and charges for additional check stock ordered by you.
Step 8. Summarize Reconciling Items
Add or subtract all reconciling items from the bank's ending cash balance for your account, and compare the result to your own record of the ending cash balance. If the two numbers do not match, it is possible that the beginning balances of these two numbers also did not match, in which case you should reconcile the bank statement for the preceding period. Otherwise, there is still a reconciling item within the current period that you have not yet identified.
Step 9. Document Reconciling Items
Once the reconciliation is complete, staple your list of all reconciling items to the bank statement or write these items onto the reconciliation form appearing on the back of the bank statement. Store this information, so that you can reference it in the future.
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The Daily Bank Reconciliation
The procedure for the monthly bank reconciliation that was just outlined is the standard approach – in terms of its timing. An alternative is to conduct a daily bank reconciliation, which is based on the daily transactions posted by a bank on its website. By completing a daily reconciliation, it is possible to immediately identify unrecorded incoming cash. In addition, any unusual or unauthorized transactions impacting a cash account can be investigated at once. For example, if a third party fraudulently removes cash from an account with an ACH debit, the accountant can immediately institute a debit block to keep any additional debits from impacting the remaining cash.
The procedure to be followed for a daily bank reconciliation is essentially the same as the one just noted for a monthly reconciliation. We recommend completing it at the beginning of each work day, which makes it easier to contact the bank to discuss and take corrective action regarding any anomalies found. Also, completing this chore early makes it easier to reliably check off the department work list, before other issues take up the remaining time available.
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