DH0509 - Bank Reconciliation

Bank reconciliation is a process that helps ensure the accuracy and integrity of an organization’s financial records by comparing its internal accounting records with the bank statement. It is a crucial activity for businesses to identify any discrepancies or errors in their financial transactions.
The primary purpose of bank reconciliation is to reconcile the differences between the balances shown in the organization’s books and the bank statement. These differences can arise due to various reasons, such as timing differences, outstanding checks, deposits in transit, bank fees, interest earned or charged, and errors in recording transactions.
The bank reconciliation process typically involves the following steps:
Gather information: Obtain the bank statement for the relevant period and gather the necessary internal accounting records, including cash receipts, disbursement records, and general ledger balances.
Compare deposits: Compare the deposits listed on the bank statement with the deposits recorded in the organization’s books. Identify any discrepancies, such as deposits in transit that have not yet been credited by the bank or deposits recorded in the books but not reflected on the bank statement.
Compare checks and withdrawals: Compare the checks issued and other withdrawals listed on the bank statement with the corresponding records in the organization’s books. Look for any discrepancies, such as outstanding checks that have not yet cleared the bank or withdrawals not recorded in the organization’s books.
Adjustments: Make necessary adjustments to the organization’s books to account for any discrepancies identified during the comparison process. This may involve recording outstanding checks, deposits in transit, bank fees, interest earned or charged, and any other items that affect the bank balance or the organization’s cash position.
Reconcile balances: Update the organization’s cash account balance based on the adjustments made in the previous step. Compare this adjusted cash balance with the ending balance shown on the bank statement. The two balances should now match if the reconciliation process has been performed accurately.
Investigate and resolve discrepancies: If the adjusted cash balance and the bank statement balance still do not match, further investigation is required to identify the cause of the discrepancies. This may involve contacting the bank to inquire about specific transactions or reviewing internal accounting records for potential errors.
Record reconciliation: Once the differences have been resolved, document the reconciliation process and its outcomes. This documentation serves as evidence of the organization’s efforts to ensure the accuracy of its financial records.
Bank reconciliation is typically performed on a regular basis, such as monthly or quarterly, to ensure that any discrepancies are promptly identified and resolved. It helps organizations maintain accurate financial records, detect errors or fraudulent activities, and provide a clear picture of their cash position.