Reconciling Your Bank Statements
Posted on Wednesday, November 01, 2017 Share
The reconciliation of your organization’s bank accounts is a key financial process. Ideally the bank reconciliation should be prepared by someone not involved in the receipts or disbursements process. A different individual should then review the reconciliation. In smaller organizations this may be difficult so it may be beneficial to include the board treasurer in the process.
It is important to remember that there are two parts to the reconciliation process. The first is making sure all activity that has cleared the bank statement is recorded in the general ledger. Often times there are deposits such as interest income or grant payments that have been electronically deposited into the bank or withdrawals such as bank fees or payroll that need to be recorded in the organization’s general ledger. In order to make sure all activity has been properly recorded, journal entries need to be prepared to record these types of transactions.
Once all of the bank statement activity has been recorded in the general ledger, any differences between the general ledger cash balance and bank statement balance should be addressed. Deposits in transit, those deposits that have been made but have not yet cleared the bank, need to be added to the bank statement balance on the reconciliation. Any outstanding checks, checks that have been issued but not yet cleared the bank, need to be deducted from the bank statement balance to come to a reconciled balance per books. The reconciled balance per books should agree to the cash balance in the general ledger.
After the bank reconciliation has been prepared, it should be reviewed by someone other than the individual who prepared it. When reviewing the bank reconciliation, the reviewer should obtain both the reconciliation, the bank statement and any cancelled checks. The following items should specifically be noted.
- Confirm the bank reconciliation was done timely.
- Confirm the ending balance on the bank reconciliation agrees with the balance in the general ledger.
- Review cancelled checks for proper signatures and vendor names.
- Review outstanding checks for any old checks. Older checks that have not cleared should be turned over to the State of Indiana for collections.
- Review deposits in transit for reasonableness. These should only take a few days to clear the bank.
- Confirm that all journal entries are cleared. There should not be any journal entries listed as reconciling items.
Upon completion, the reviewer should initial and date the face of the bank reconciliation to document that the review has been done.
The bank statement reconciliation is a critical part of the organization’s internal controls. Make sure your organization is properly reconciling all of your bank accounts monthly.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.