Steps In Preparing A Bank Reconciliation
Bank Reconciliations
The Bank Reconciliation process requires some detail analysis work.
Every check amount on the bank statement must be compared to the check amounts in the Cash account. Any differences, such as the company's outstanding checks and errors, will become part of the adjustments listed on the bank reconciliation.
Every deposit on the bank statement must be compared to the receipts recorded in the company's Cash account. Any differences, such as a deposit in transit and/or errors, will become part of the adjustments listed on the bank reconciliation.
Other items on the bank statement must be compared to the other items in the company's Cash account. Any differences, such as bank fees, checks returned because of insufficient funds, collections made by the bank, etc., will be part of the adjustments listed on the bank reconciliation.
What Does It Look Like ?
| Bank Reconciliation | |
Bank Balance | Checkbook Balance |
| Plus:Receipts Bank Does Not Know About | Plus:Receipts Business Does Not Know About |
| Less: Disbursements Bank Does Not Know About | Less:Disbursements Business Does Not Know About |
| Adjusted Bank Balance | Adjusted Checkbook Balance |
Steps Involved
Organize Your Checks
If your bank returns your checks in your bank statement and the checks aren't already sorted in numerical order, you need to take the time to put your checks in numerical order. I hate to do this, but it makes it a lot easier if you need to later locate and review an actual check. You also need to review all the checks and make sure that all the checks have the proper amounts, signatures, and endorsements.
Review Your Checkbook
Next,you need to review your checkbook for any omitted check numbers or deposits. In other words, double check that all your cash transactions have been recorded in your checkbook. Since your checks are numbered, look for any missing numbers in your checkbook. Likewise, if you assign a number to your deposit tickets all you need to do is look for any missing numbers.
You also need to check your additions and subtractions and your calculated balances to make sure that the checkbook balances have been accurately calculated. While performing your review of your checkbook also be on the lookout for any transactions that were accidentally recorded twice.
Compare Deposits Recorded By Bank and Deposits Recorded In Checkbook
Prior Month Bank Reconciliation and Prior Month Checkbook
Since at times some of the deposits that you prepare during a given month do not appear on your bank statement in the month written because they have not yet been "processed" by your bank, you may find the deposit that you need to mark as cleared with a check mark (or your symbol or notation) in your checkbook listed in an earlier month. These type of deposits are listed on your prior month's reconciliation as Deposits In Transit. You also need to mark them with a check mark (or your symbol or notation) as cleared on your prior month's bank reconciliation.
Any deposits not marked as cleared need to be carried over to the current month's bank reconcilation as a Deposit In Transit.
Current Month Bank Reconciliation and Current Month Checkbook
Using the section of your bank statement that lists the deposits by the bank and your checkbook or register you need to compare the two records to see what deposits have been recorded in your checkbook and what deposits have also been recorded by the bank.
Place a check mark (or your symbol or notation) by the deposit recorded in the bank statement and also a check mark (or your symbol or notation) by the same deposit recorded in your checkbook or register. If the amounts are different place a ? (or your symbol or notation) by the deposit on the bank statement and also a ? (or your symbol or notation) beside the deposit in your checkbook or register. Note that the date of the deposit on your bank statement may be the same date as recorded in your checkbook or a day or two later due to the time it takes the bank to process your deposit.
This is simply the process of putting a check mark (or any other symbol or notation you want to use) by the deposit on the bank statement and also a check mark (or your symbol or notation) by the deposit in your checkbook or register for all the transactions that appear in each record and that have the correct amounts.
For those transactions that appear in both records but have a different amount place an ? (or any other symbol or notation you want to use) beside the transaction on the bank statement and also an ? (or your symbol or notation) in your checkbook or register. The transactions marked with a ? (or your symbol or notation) need to be investigated and corrected.
What does the check mark (or your symbol or notation) in both the bank statement and checkbook mean ? All this means is that the cash transaction, in this case a deposit, has been accurately recorded in your checkbook and also recorded by the bank in your bank statement.
Deposits In Transit Listing
Prepare a listing of receipts / deposits (date and amount) recorded in your checkbook or cash register that have not been recorded in the bank statement. This is also quite simple. Simply list the deposits in your check book or register that don't have a check mark or a ? beside them (or your symbols or notations). This listing of deposits is called your Deposits In Transit. Also, check that all deposits listed as Deposits In Transit on the prior month's bank reconciliation have a check mark beside them. If any don't include them on the current month's Deposits In Transit Listing. Normally all Deposits In Transit from a prior month should have been processed by your bank in the current month.
Compare Checks Recorded By Bank and Checks Recorded In Checkbook
Prior Month Bank Reconciliation and Prior Month Checkbook
Since at times some of the checks that you prepare during a given month do not appear on your bank statement in the month written because they have not yet been "processed" by your bank, you may find the check that you need to mark as cleared with a check mark (or your symbol or notation) in your checkbook listed in an earlier month. These type of checks are listed on your prior month's reconciliation as Outstanding Checks. You also need to mark them with a check mark (or your symbol or notation) as cleared on your prior month's bank reconciliation.
Any checks not marked as cleared need to be carried over to the current month's bank reconciliation as Outstanding Checks.
Current Month Bank Reconciliation and Current Month Checkbook
Using the section of your bank statement that lists the checks processed by the bank (usually listed in check number order) and your checkbook or register you need to compare the two records to see what checks have been recorded in your checkbook and what checks have also been recorded by the bank. In addition, you need to make sure that the check number and amounts recorded on your bank statement and in your checkbook or register also agree. Note that the date of the check transaction on your bank statement may be the same date (rarely) as recorded in your checkbook or a few days or even weeks later depending on when your payee deposits his/her check in their bank account and when your check is finally processed by your bank.
This is simply the process of putting a check mark (or any other symbol or notation you want to use) by the check number on the bank statement and also a check mark (or your symbol or notation) by the check number in your checkbook or register for all the transactions that appear in each record and that have the correct check numbers and amounts.
For those transactions that appear in both records but have a different check number or amount place an ? (or any other symbol or notation you want to use) beside the transaction on the bank statement and also an ? (or your symbol or notation) in your checkbook or register. The transactions marked with a ? (or your symbol or notation) need to be investigated and corrected..
What does the check mark (or your symbol or notation) in both the bank statement and check book mean ? All this means is that the cash transaction, in this case a check, has been accurately recorded in your checkbook and also recorded by the bank in your bank statement.
Outstanding Checks Listing
Prepare a listing of your outstanding checks (checks that the bank has not yet processed and paid). Where do you think the information for this list comes from ? It's real simple, simply include all the checks (check number, date, payee and amount) from your checkbook or register that don't have a check mark or a ? (or the symbols or notations you use) beside them. This listing of checks is called your Outstanding Checks. Also, check that all checks listed as outstanding on the prior month's bank reconciliation have a check mark beside them. Make sure that any that don't are carried forward and included in your current month's outstanding check list.
Other Transactions
Review your checkbook for any other transactions listed in your checkbook or register with your bank statement and place a check mark (or your symbol or notation) beside the transactions that appear in your checkbook and a check mark (or your symbol or notation) beside the transaction that also appears on the bank statement if the reference and/or amounts are correct. If the amounts are incorrect mark the entry with a ? .Likewise, Review your bank statement for any other transactions listed in the bank statement with your checkbook and place a check mark (or your symbol or notation) beside the transactions that appear in your checkbook and a check mark (or your symbol or notation) beside the transaction that also appears on the bank statement if the reference and/or amounts are correct. If the amounts are incorrect mark the entry with a ? .
Any transactions that don't have a check mark on the bank statement such as bank fees need to be recorded in the checkbook. Likewise any transactions in the checkbook that don't have a checkmark need to be included as an adjustment to the bank balance.
Fix Errors
What about those cash transactions checks, deposits, etc. marked with a ?
These are errors that need to be investigated, explained, and corrected.
Prepare Formal Bank Reconciliation
The simple logic behind the previous steps.
- All transactions that have a check mark (or your symbol or notation) have been recorded in the checkbook and in the bank statement.
- Transactions on the bank statement that don't have a check mark (or your symbol or notation) have not been recorded in your checkbook or register.
- Transactions in your check book or register that don't have a check mark (or your symbol or notation) have not been recorded in your bank statement.
- Transactions that have a ? (or your symbol or notation) beside them on the bank statement and in your checkbook or register are possible errors and need to be investigated, explained, and corrected.
What did I just explain above in simple man or women's language ? All a bank reconciliation involves is just comparing transactions that are entered on your bank statement and transactions that are entered in your checkbook or register and making sure that they agree and that all cash transactions recorded either on the bank statement or your checkbook have been properly recorded and accounted for.
What's next ?
Reconciling Items