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The bank reconciliation process

The general ledger contains a record of your company’s cash transactions while the bank statement records all money moving in and out of an account. Theoretically these should result in the same cash balance, however, that is rarely the case. To ensure that these two items balance it is important to perform regular reviews called bank reconciliations. A process in which you will match all cash account information from the accounting records to the corresponding information on the bank statement.

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Before you perform a bank reconciliation, it’s important to ask yourself, are your books up to date? If you’ve fallen behind in your bookkeeping, you must get back on track before beginning the process. Once caught up you can follow the steps below to assist in completing your bank reconciliation.

Obtain bank records

Generally, at the end of each month you should receive a bank statement that will list out all transactions that have occurred that month.

Compile business records

This will require access to your company’s ledger, or books.

Determine where to start

If a reconciliation has not been performed on a regular basis and you are uncertain where to begin, you can try pinpointing when your books last matched the bank balance and begin there.

Review deposits and withdrawals

Ensure all deposits and withdrawals have been accounted for in your bank statement, any missing items will need to be added in.

Check income and expenses in your books

Make sure every transaction is properly accounted for by checking your books against the bank statements.

Adjust your book balance

You will need to adjust your records to reflect all transactions. This can be done by adding outstanding deposits and deducting outstanding withdrawals.

Adjust your bank balance

Occasionally the bank statement will fail to accurately reflect transactions due to outstanding checks, bank errors or deposits. Necessary changes will need to be made to correct these transactions, deducting outstanding checks and adding deposits in transit.

Compare balances

Once your records match and you have made all necessary adjustments confirm that your end balances are the same, other wise the process will need to be repeated to find the error.

We recommend a reconciliation be done at least monthly to ensure accuracy and allow you to catch any unusual transactions. Unusual transactions could be caused by fraud or errors, especially if more than one account is used. By performing a reconciliation, you will be able to better understand your true cash position and cash flow. Your company is also less susceptible to bounced checks and failed electronic payments in the short-term and becoming overstretched financially in the long-term when reconciliations are performed regularly.

Contact a Henry + Horne audit professional with any questions.

Cheyanne Femiani