The bank reconciliation process involves the comparison of internal and bank records for a bank account, and adjusting the internal records as necessary to bring the two into alignment. The bank reconciliation process is usually accomplished with the bank reconciliation module in an accounting software package. Assuming that this is the case, follow these steps to complete a bank reconciliation:
- Access bank records. Access the on-line bank statement provided by the bank for the company's cash account (presumably its checking account).
- Access software. Access the bank reconciliation module in the accounting software.
- Update uncleared checks. Go to the checks section of the bank reconciliation module. The system will display a list of uncleared checks. Match this list of checks against the list of checks that have cleared the bank, as listed on the bank statement. In the bank reconciliation module, flag all checks that have cleared the bank. The following issues may arise:
- If any checks recorded by the bank as having cleared are listed on the bank statement with different amounts than what the company recorded, access the check image posted on the bank's website to verify the amount on the check. If the company recorded it incorrectly, make an adjusting entry to match the amount of the check to the amount recorded by the bank.
- If any checks recorded by the bank as having cleared are listed incorrectly by the bank, contact the bank and send them documentation of the error. This difference between the recorded amounts of the bank and the company will remain until such time as the bank adjusts its records. In the meantime, the difference will be a reconciling item.
- Update deposits in transit. Go to the deposits section of the bank reconciliation module. The system will display a list of deposits in transit. Match these deposits against the list of deposits that have cleared the bank, as listed on the bank statement. In the bank reconciliation module, flag all deposits that have cleared the bank. The following issues may arise:
- The bank may have recorded some deposits that the company did not record. If so, access the check image posted on the bank's website to verify who issued the check and the amount of it. Record this deposit in the company's records.
- The company may have recorded some deposits that were not recorded by the bank. This may be due to a not sufficient funds situation, or because the bank does not accept foreign checks. These deposits will be reconciling items until such time as the company can convince the bank to deposit them or finds an alternative way to convert the deposited checks to cash. It may also require the reversal of these deposited items in the records of the company.
- Enter new expenses. Enter as expenses in the company's records any expense items that the bank recorded against the account. Examples of such expenses are:
- Not sufficient funds fees. This is a fee charged to the company for any checks deposited (or issued) for which the issuer did not have sufficient funds.
- Check printing fees. This is a fee charged when the company orders new check stock through the bank.
- Service fees. The bank will charge fees for such items as check processing, deposit processing, direct deposit payments, and wire transfers issued and received (known as lifting fees).
- Enter bank balance. Enter in the bank reconciliation module the ending cash balance noted on the bank statement.
- Review reconciliation. The software should now present any difference in the ending cash balance recorded by the company and the bank, along with any reconciling items, such as outstanding checks and deposits in transit. If there is no undocumented reconciling item, print the bank reconciliation and store it.
- Continue investigation. If there is an undocumented reconciling item, review the bank reconciliation process steps just noted. If there is still an undocumented variance, go back to the bank reconciliations for the preceding periods and see if the variance arose in a prior period. If so, investigate the earlier periods to locate the difference.
- Adjust for immaterial items. If the remaining difference is immaterial, it may be acceptable to record the difference in the company's books, rather than spending time on additional investigation activities.
Given the amount of time required to complete the bank reconciliation process, some companies attempt to minimize its impact on the period-end closing process by running a daily reconciliation. By doing so, any residual reconciling items at month-end are so minor that they can be completed in a few minutes.