How to Do a Reconciliation for Your Accounts

Account reconciliation is a fundamental process in financial management, verifying the accuracy and consistency of financial records. It involves comparing internal transaction records against external statements, such as bank statements, to ensure all financial activities are properly accounted for. The primary goal is to identify and resolve discrepancies, confirming the reliability of financial data. This routine step helps maintain the integrity of financial reporting for individuals and organizations.

Gathering Necessary Information

Before beginning the reconciliation process, assemble all relevant financial documents for the specific period. The bank statement is a primary external document, detailing the account number, statement period, opening and closing balances, and a comprehensive list of all transactions. This list includes deposits, withdrawals, electronic transfers, bank fees, and any interest earned.

Concurrently, internal financial records must be gathered, such as a checkbook register or general ledger. These records should detail checks issued, deposits made, and all electronic transfers. Complete and organized records from both sources are necessary for effective reconciliation.

Comparing Transactions and Identifying Differences

The initial step in reconciling accounts involves systematically comparing each transaction listed on the bank statement with the corresponding entry in internal financial records. This process requires meticulously marking off items that appear on both the bank statement and the internal ledger. For instance, a deposit recorded in your internal cash book should be matched against a corresponding credit on the bank statement.

Differences often emerge due to timing or recording variations between the bank and the account holder’s records. Common discrepancies include outstanding checks, which are checks issued and recorded internally but have not yet cleared the bank. Conversely, deposits in transit represent funds recorded by the account holder but not yet processed and reflected on the bank statement.

Other common items that might appear on one record but not the other include bank service charges, which are deducted directly by the bank but may not be immediately known or recorded internally. Similarly, interest earned on the account, while added by the bank, might not be entered into internal records until the statement is received. Errors in data entry, such as transposing numbers or duplicate entries, can also cause mismatches between the two sets of records.

Adjusting Records for Discrepancies

After identifying all differences, the next step is to adjust the balances to achieve agreement. The balance reported on the bank statement needs adjustment for items the bank has not yet processed. Deposits in transit, representing cash or checks deposited but not yet appearing on the bank statement, are added to the bank’s ending balance. Outstanding checks, which are checks written and recorded internally but not yet cashed by the recipient, are subtracted from the bank statement balance.

Concurrently, the internal record balance requires adjustments for transactions the bank has already processed but are not yet recorded internally. Bank service charges, such as monthly maintenance or transaction fees, are subtracted from the internal cash balance. Interest earned, which the bank adds automatically, should be added. Any errors discovered in internal records, such as incorrect amounts or duplicate entries, must also be corrected. These adjustments ensure both the adjusted bank balance and internal cash balance accurately reflect available cash.

Finalizing the Reconciliation

The culmination of the reconciliation process involves confirming that the adjusted bank balance precisely matches the adjusted internal record balance. If, after all identified discrepancies have been addressed and all necessary adjustments made, the two balances are equal, the reconciliation is considered complete and accurate. This alignment signifies that all transactions have been properly accounted for and recorded in both sets of records.

Should the adjusted balances still not match, further investigation is required. This may involve re-checking calculations, reviewing unmatched items, and scrutinizing both the bank statement and internal records for overlooked transactions or errors. A successful reconciliation provides reliable financial records, necessary for informed financial decision-making and overall financial health.