Bank Reconciliation

by Richard A. Cañete, CPA

Posted on 2021-11-20


Bank reconciliation is the process of matching the cash in bank records of an entity with the actual bank statement. Its objective is to determine the differences between transactions recorded in the accounting books versus the actual transaction and balance in the bank. In the typical business setting, it is highly unlikely that bank and book cash balances are the same at a given point in time. Thus, there is a need to regularly perform this activity.



Regular Bank Reconciliation


Generally, bank reconciliations are performed in regular intervals (weekly, monthly or quarterly) as part of an effective accounting process of an entity. This procedure will examine and match the beginning balances, transactions and ending balance in the bank statement with the records appearing in the books. A regular bank reconciliation ensures that any differences or reconciling items are ascertained, monitored and accounted for accurately.


Cash Management


The bank reconciliation statement also provides a perspective on the adequate management of cash balances. This activity enables the tracking of outstanding checks and deposits in transit which are recorded in the accounting books but are yet to be reflected in the bank statement. This in turn, allow cash custodians to allocate enough cash to avoid bank fees from drawings on insufficient funds, make follow-ups or hasten collection efforts of its receivables.


Preventive Measure


At a minimum, the performance of bank reconciliations is an indispensable internal control activity. The extent of items that bank reconciliations help to determine or prevent ranges from;


  •          Unauthorized withdrawals,
  •          Unauthorized transfers out of the account,
  •          Erroneous check amounts,
  •          Duplicate payments,
  •          Missing deposits,
  •          Erroneous Bank entries, and so on.


When these items or discrepancies are discovered in the bank reconciliation statement, the appropriate actions can then be performed. Therefore, it is only wise that a company perform a regular and accurate bank reconciliation, not only to control cash but also as a preventive measure to the possibility of fraud or error.


To this day, this activity can be performed manually or partially-automated with the aid of accounting systems. While some entities handle the bank reconciliation in paper form, innovations in accounting systems can accomplish this procedure electronically and match with the accouting records with the help of electronic bank statements thereby making the process, more efficient.


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