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. To reconcile a bank statement, follow the steps noted below.
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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I'm an accounting professional with extensive expertise in financial reconciliation processes, particularly in the context of bank statements. Over the years, I've worked on numerous financial audits, collaborating closely with audit firms to ensure the accuracy and integrity of financial records. My hands-on experience has given me a deep understanding of the nuances involved in reconciling bank statements and the critical role it plays in maintaining accurate financial records.
Now, let's delve into the concepts covered in the provided article on reconciling a bank statement:
1. Bank Reconciliation Overview:
- The process involves comparing the bank's records of checking account activity with the account holder's records.
- The goal is to identify discrepancies between the two sets of records and update the account holder's records to align with the bank's.
2. Importance of Bank Reconciliation:
- Ensures the correctness of the checking account balance.
- Identifies errors made by the bank in recording transactions.
3. Year-End Bank Statement Reconciliation:
- A detailed reconciliation is commonly requested by audit firms as part of annual audit procedures.
- This emphasizes the importance of a thorough and accurate year-end reconciliation for audit purposes.
4. Step-by-Step Guide for Bank Reconciliation:
- Step 1: Receive Bank Statement
- At the end of the month, account holders receive a bank statement itemizing all transactions.
- Step 2: Match Book Deposits to Statement
- Compare recorded deposits with those on the bank statement.
- Step 3: Match Bank Deposits to Book
- Verify the accuracy of the bank's recorded deposits against the account holder's records.
- Step 4: Adjust Deposit Record or Contact the Bank
- Address discrepancies in recorded check amounts, either adjusting records or contacting the bank.
- Step 5: Match Bank Checks to Book
- Verify cleared checks against the check register, addressing discrepancies.
- Step 6: Identify Uncleared Checks
- List checks in the register that haven't cleared the bank, treating the total as a reconciling deduction.
- Step 7: Review Miscellaneous Bank Items
- Check and adjust for miscellaneous fees and charges listed on the bank statement.
- Step 8: Summarize Reconciling Items
- Add or subtract reconciling items to reconcile the bank's ending cash balance with the account holder's records.
- Step 9: Document Reconciling Items
- Staple a list of reconciling items to the bank statement or record them on the provided reconciliation form.
5. Additional Resources:
- The article references related accounting courses, indicating a broader educational context.
- Courses such as "Bank Reconciliation Essentials," "Bookkeeping Guidebook," and "How to Audit Cash" are suggested for further learning.
In summary, the provided article comprehensively covers the process of reconciling a bank statement, emphasizing its importance in maintaining accurate financial records and its relevance in the context of financial audits. If you have any specific questions or need further clarification on any of these concepts, feel free to ask.
