One of the more fundamental and important processes in the monthly close is the reconciliation of bank accounts. Reconciling your bank accounts helps protect you from fraud, identifies checks and deposits that have not cleared, reveals possible mistakes in the general ledger, and is an important component of the accountant’s fiduciary responsibility as a custodian of funds. Much has been much written lately regarding accounting automation that you might assume that bank reconciliations happen in a completely automated fashion. While you should use any automation tool available, we have not found a tool that will completely reconcile your cash accounts. Here are some tips to make the process fast and easy.
- Link your bank account to your accounting system – Whenever possible, use automation. Link your bank account to your accounting system so that your bank activity flows directly into your system. This will not only eliminate the time to enter transactions manually, it will eliminate the possibility of transpositions (incorrectly entered dollar amounts). In a highly active account, these can take hours to locate and fix.
- Check opening balances and closing dates. Make sure the opening balance on the bank statement matches your system’s opening balance. It is rare, but some banks will post a transaction retroactively which may change your opening balance. Also make sure that the last day of the statement agrees to what you have entered. Occasionally, a bank statement will post on the 30th or the 1st instead of the 31st. When you can, try to use the actual bank statement versus a CSV output of the transactions.
- Record bank fees, interest income and other bank adjustments. Some accounting systems give you the opportunity to enter these as part of the reconciling process creating a journal entry for you. Others require you to enter these on your own. Make sure you address these before you start reconciling.
- Create a strategy. When you have an account with a high volume of activity, it helps to have a strategy to complete the reconciliation. One that works well is to reconcile receipts separately from payments. In your reconciliation, start with the column with the fewest transactions, typically debits. Don’t reconcile transaction by transaction. Start with either cash inflow (deposits, ACH) or cash outflow (ACH, Checks, withdrawals). Once you reconcile the least active column, compare it to the bank statement. Many bank statements display the total deposits and the total cash outflow for the month. Does your total agree to the bank statement? If it does, you are done with that column and can move forward. If there is a reconciling difference, it will be easier to locate before you move on to the column with the highest activity.
- Make notes! Whether you print out your bank statement and use a pen or choose to work electronically, when you have an identified transaction, highlight it so you remember to come back to it. Once you have made one complete pass through the reconciliation, you can review the unidentified items and enter these accordingly. Always make sure to review items that have not cleared. Take the time to investigate uncleared items so that stale transactions do not affect your accounting.