Performing a Monthly Bank Reconciliation

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A bank reconciliation compares the transactions that occurred in the organization’s bank account to the transactions that occurred in the organization’s general ledger or accounting software. It is important to note that the ending cash balance for the bank account is referred to as the “bank balance” and the ending cash balance for the organization’s records is called the “book balance”. At the end of the reconciliation we want these two ending amounts to match.

The majority of the bank reconciliation is fairly easy. It is similar to balancing a checkbook. Simply review those transactions that occurred on the bank statement and match them with the transactions in the general ledger. The hard part comes when there are transactions that do not match. For example, the organization could have written several checks at month-end that are not reflected on the bank statement. These are considered to be outstanding checks and should be cleared in the next month. This is the same concept for deposits that the organization makes at month-end. If the deposit is not on the bank statement, then it should be considered as a deposit in transit and accounted for on the next month’s bank statement. Another example is the bank could have deposited .000019% interest into the organization’s bank account and the organization did not record the interest on their books. Therefore, the organization would have to make a journal entry to record the interest revenue and cash.

The most important part of the reconciliation process is that it is performed monthly. Many organizations wait until the December to reconcile January – November and this can lead to a big headache. Trying to remember what the organization did last week can be tough enough, never mind eleven months ago. Keep in mind that most accounting software has a bank reconciliation feature built right in. Once a monthly reconciliation process has been established, this will save time and money in the future.

By Dane Baxter