Bank Reconciliation

Gregory J. Cook, EA, CPA+ Accredited Tax Advisor Past President Alabama Society of Enrolled Agents Past President Alabama Association of Accountants

Reconciling the checking account ...
When you receive your bank statement, make sure the statement, your checkbook, and your books agree. The statement balance may not agree with the balance in your checkbook and books if the statement:

Includes bank charges that you did not enter in your books and subtract from your checkbook balance, or

Does not include deposits made after the statement date or checks that did not clear your account before the statement date.

By reconciling your checking account, you will:

Verify how much money you have in the account,

Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and

Correct any errors in your bank statement, checkbook, and books.

You should reconcile your checking account each month.
Before you start to reconcile your monthly bank statement, check your own figures. Begin with the balance shown in your checkbook at the end of the previous month. To this balance, add the total cash deposited during the month and subtract the total cash disbursements.

After checking your figures, the result should agree with your checkbook balance at the end of the month. If the result does not agree, you may have made an error in recording a check or deposit. You can find the error by doing the following.

Adding the amounts on your check stubs and comparing that total with the total in the "amount of check" column in your check disbursements journal. If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal.

Adding the deposit amounts in your checkbook. Compare that total with the monthly total in your cash receipt book, if you have one. If the totals do not agree, check the individual amounts to find any errors.

To reconcile your account, follow these steps.
Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Note all differences in the dollar amounts.

Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Note all differences in the dollar amounts. Mark the check number in the checkbook as having cleared the bank. After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks.

Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly.

When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Many banks print a reconciliation worksheet on the back of the statement.
If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct.

At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. If you still have differences, check the previous steps to find errors.