Tip of the Day: What is Reconciliation?

I keep talking about a term called reconciliation. The basic definition "is the process of comparing and matching figures from the accounting records against those shown on a bank statement. The result is that any transactions in the accounting records not found on the bank statement are said to be outstanding." -source: http://en.wikipedia.org/wiki/Bank_reconciliation



In other words you are matching your financial records to the bank's records for the month in order to detect any errors by either party.



Now that you know what reconciliation is, how do you do it?


Step1:

Start with the bank statement's ending balance and check it against the balance in your check book. If they differ, you'll need to account for, or reconcile, the difference. Make sure your check book arithmetic is correct before proceeding.
Step 2
Verify that you have added bank interest and bank credits and subtracted bank charges and bank debits in your check book balance. If you see debits you don't understand, call the bank and ask for an explanation and, if necessary, a justification for the charge.
Step 3
Tick off all checks that appear on the bank statement and be sure all check numbers and amounts agree with your check book record. List any checks you have written which do not appear on the bank statement and subtract them from the bank statement balance. These are called "outstanding checks."
Step 4
Add any deposits to the bank statement balance which you have included in your check book balance after the statement's closing date and do not appear on the bank statement. These are called "deposits in transit." Follow up on the next month's bank statement when you receive it to verify they have been credited to your account.
Step 5
Compare the adjusted bank statement balance to your check book balance. They should now agree. If they don't, and this is the first time you are doing a reconciliation, look for debits, credits and checks from prior months you may have missed in your check book. If you still can't get the two balances to agree, you may need to go to the bank and ask for assistance in doing a line by line comparison over several months until you can resolve the difference

-source: http://www.ehow.com/how_2227323_reconcile-bank-statement.html



I hope this answers your questions regarding the reconciliation process.



Crystal :)