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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 ledgerX
    
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 statementY
    
Compare adjusted balances (Section 3)
Adjusted cash account in general ledgerX
Adjusted balance per bank statementY
DifferenceZ
    
Reconciling items 
 Item a – short description___
 Item b – short description___
  
Total reconciling items (= Difference)Z
    

 

 

 

Prepared by:_______________________________________ Date___________

 

 

 

Approved by:_______________________________________ Date__________