 A
bank reconciliation should be prepared each month when you receive your bank statement.
This process verifies the actual amount of cash in your account.
The
balance in your check register will never agree with the balance shown on the
bank statement because of the delay in checks and deposits clearing the account,
automatic withdrawals you have not recorded, bank service charges, and possible
errors you may have made in your register. By reconciling the records of the bank
against your check register, you will result in having an accurate cash balance
in your bank account. Bank Statement Your
bank will prepare a monthly bank statement indicating the date range of the period,
the beginning and ending cash balance for the period, and the deposits and the
checks that cleared within the period. It is very important to understand that
the transactions shown on the bank statement will represent the items presented
to the bank during the period and not what was issued. There is a delay from when
you issue a check, make a deposit, or make a purchase with your bank debit card
to when these transactions will actually appear in your bank account. This is
also true for any bank account balances you receive through your ATM (Automatic
Teller Machine) card receipts. Check Register As
you issue checks, make purchases with your bank debit card, make ATM withdrawals
and deposits, enter each transaction in your check register. If you have any automatic
withdrawals electronically taken from you account, enter these transactions in
your check register at the appropriate time within the month. If your bank account
has monthly service charges, enter these charges in your check register at the
appropriate time within the month. Each entry
should reference the date, the payee and the amount of the transaction. For each
entry, add or subtract the amount of the transaction from your bank balance. Most
importantly, enter all the transactions! Bank
Reconciliation Step One
Enter a check mark beside each deposit in your
check register that was processed by the bank within the period and shown on the
bank statement in the deposits section. Deposits on bank statements are also referred
to as Credits.
Step
Two
Make a list of any deposits that were entered in your check register
and did not appear on the bank statement. Add and total these deposits. These
deposits should be at the end of the period or after the period ended and are
known as In Transit. This means the deposits did not clear your account before
the banking period ended. These deposits in transit should appear on the bank
statement in the following period. If
you have deposits in your check register with dates prior to the last deposit
shown on the bank statement that did not appear on the bank statement, you will
want to contact your bank. This will mean the deposit that you recorded did not
go into your bank account and could possibly mean there is a bank error.
Checks, ATM Withdrawals,
Bank Debit Card Transactions or Automatic Electronic Payments
Step Three
Enter a check mark beside each
check, automatic electronic payments, ATM withdrawals or bank debit card transactions
in your check register that was processed by the bank within the period and shown
on the bank statement in the checks section. Checks on bank statements are also
referred to as Debits or Withdrawals.
Step
Four
Make a list of any checks, automatic
electronic payments, ATM withdrawals or bank debit card transactions that were
entered in your check register and did not appear on the bank statement. Add and
total these transactions. These transactions should be at the end of the period
or after the period ended and are known as In Transit. This means the transactions
did not clear your account before the banking period ended and should appear on
the bank statement in the following period. Use
the following formula to reconcile your check register to the bank statement:
|
1. |
Enter the Ending Balance shown on your
statement | _________ |
| 2. |
Enter the total deposits in transit from
step two | _________ |
| 3. |
Add lines 1 and 2 | _________ |
| 4. |
Enter the total checks/withdrawals in transit
from step four | _________ |
| 5. |
Subtract line 4 from line 3. This is your
reconciled balance and should agree with the balance in your check register.
| _________ | Balancing
Tips You will want to do your bank reconciliation
when it is quiet and when you are fresh. If your check register balance does not
agree with your reconciled balance on line 5 of the formula, do the following:
-
Recheck all math in all steps
and in the formula.
-
Carefully
recheck each transaction on the bank statement against the check register to make
sure that the exact amount that was written in the check register is the amount
that cleared on the bank statement.
-
Subtract the reconciled balance from the check register balance.
If the variance amount is equally divisible by 9, there is a transposing error
in the check register, in the steps or in the formula. For example, a check may
be written as $9.69 in the check register and actually cleared the bank as $9.96.
This is a variance of $.27, which can be divided evenly by the number 9.
-
Check your bank statement carefully
for any transactions that cleared the bank and were not written in your check
register. Enter these transactions in the check register and correct the balance.
-
After trying tips
1 through 4, you may want to consider taking your records to the bank. The customer
service department of your bank will assist you with the bank reconciliation.
Preparing bank reconciliations will ensure you maintain
an accurate bank balance but will also catch bank errors that occasionally occur.
Take control with the first step of cash management — reconcile your bank account! For more information regarding this topic or any other tax-related issue, please call The Henssler Financial Group Tax & Accounting Division at 770-428-4025.
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