Bank Reconciliations

Bank reconciliations are an essential internal control tool and are necessary in preventing and detecting fraud.  They also help identify accounting and bank errors by providing explanations of the differences between the accounting record’s cash balances and the bank balance position per the bank statement.

 

The bank reconciliation ensures that all transactions that have gone through the bank statements have been reviewed and checked, thus reducing the probabilities of errors in the data used to prepare accounts.  Bank statements also ensure completeness by helping to ensure that all payments and receipts that have gone through the bank account have also been recorded in the accounting records.  Any differences are identified and explained.  (An example is below.)

 

This function requires a segregation of duties, which means that the person who performs the bank reconciliations should not also have access to the recording of transactions in the accounting records or processing of cash disbursements or receipts.  Any differences identified between the accounting records and the bank statements should be adjusted by a person other than the one doing the reconciliations. 

 

A daily review and posting of bank transactions is done within the accounting department by separate accounting personnel to ensure all wires, ACH deposits and withdrawals, returned checks, and any other electronic items are recorded each day.  A full bank reconciliation of all bank accounts is done on a monthly basis, to be completed no later than the 25th day of the following month, and then approved by the Controller.

All reconciling differences should be identified and any necessary journal entries to resolve the differences should be posted no later than 90 days after the reconciliation is done.  The bank should be contacted concerning any bank errors which should also be resolved within 90 days.

 

Adjust cash account in general ledger (Section 1)

Balance per cash account in general ledger

___

 

Adjustments to cash account (based on bank statement):

 

Add:

Bank interest

___

 

 

Credit / wire transfers

___

 

Subtract:

Bank charges

___

 

 

Standing orders

___

 

 

Direct debits / ACH

___

 

 

Dishonoured checks

___

 

Add/Subtract:

Errors

 

Adjusted cash account in general ledger

X

 

 

 

 

Adjust balance on bank statement (Section 2)

Balance per bank statement

___

 

 

 

 

Adjustments to bank statement balance (based on accounting records):

 

Add:

Deposits in transit

___

 

Subtract:

Checks issued, but have not cleared bank

___

 

Add/Subtract:

Bank errors

 

Adjusted balance per bank statement

Y

 

 

 

 

Compare adjusted balances (Section 3)

Adjusted cash account in general ledger

X

Adjusted balance per bank statement

Y

Difference

Z

 

 

 

 

Reconciling items

 

 

Item a – short description

___

 

Item b – short description

___

 

 

Total reconciling items (= Difference)

Z

 

 

 

 

 

 

 

Prepared by:_______________________________________ Date___________

 

 

 

Approved by:_______________________________________ Date__________