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Bank Reconciliation


In bank reconciliation, financial statements are reviewed to be certain that all information is accurate, covering amounts spread across accounts. In this process, the balance in a bank statement is compared to the balance listed in a business’s general ledger. If there are any differences between these two amounts, the reason for this must be determined. To reconcile a bank statement with a general ledger, it is important that a cumulative financial record be used, with all revenues and expenses noted.

Bank reconciliation typically takes place at the end of every month, after the cutoff date provided by a bank. This cutoff date marks the point in which the bank prepares a statement for that banking period and includes all transactions made within that period. If any transactions are made after the cutoff date before the end of the month, they will not be part of the bank statement and will be considered outstanding amounts. Note that cutoff dates vary by customer, so monthly amounts may end during the beginning, middle, or end of the month.

Amount differences between accounts could be a result of human error in the math. Numbers might be transposed, such as a $1,001 amount being recorded as $1,010 instead. An amount could be entered twice or forgotten entirely, leading to discrepancies between the bank balance and the general ledger. Or, even if the two balances are the same, there could be mistakes within that somehow led to an equal balance. Instead of merely reconciling the balances, the numbers within each account must be checked.

Differences between accounts could be a result of outstanding checks. These checks may have been written and recorded in the general ledger, but were not cleared by the bank until a later date. For example, a check issued during one month may not be cashed until the following month, leading to a discrepancy between the general ledger and the bank statement.

Differences could also result from electronic and service fees. For example, payments may have fees attached which will not show up until receiving a monthly statement. Differences between accounts may be a result of fraud within a business, so it is important to regularly check bank balances.

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