Bank Reconciliation

 

 

Bank Reconciliation

This refers to the process of reconciling the balance per bank with the balance per books or making them consistent with one another. These two balances are seldom the same owing to two main reasons: (1) Time lags that prevent the two parties (the company and the bank) from recording the same transaction in the same period and (2) errors in recording the transactions by either party.

The process of reconciling the bank balance as per books with the balance as per bank has four main steps. Firstly, deposits in transit (the deposits recorded by the depositor and not the bank) should be added to the bank balance. Secondly, outstanding checks should be deducted from the bank balance.  They are issued checks recorded by the company but have not yet been paid by the bank. Third step is to ensure that all errors made by the depositor should be treated as reconciling items in determining the balance as per books whereas all errors made by the bank should be treated as reconciling items in determining the bank balance. Lastly, bank memorandum should be matched with the depositor’s records. For example, a company will deduct a $3 debit memorandum for bank service charges from the balance appearing in the company’s books.

 

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