The Importance of Reconciling Your Bank Account

Posted on Wednesday, March 15, 2023

Are your organization’s bank accounts reconciled each month? Are they reconciled in a timely manner? Is the reconciliation reviewed?

Not only is the reconciliation of your organization’s bank accounts a key financial process to ensure all activity has been recorded, it is also an important control.

There are multiple parts to reconciling the bank account.

First, make sure all of the activity that is reported on the bank statement has been recorded in the general ledger. Electronic payments made or received will be shown on the bank statement, but they may need to be recorded in the general ledger. After you make sure all activity on the bank statement has been recorded, what items are left on the books that have not cleared the bank? Are these items correct? There will likely be outstanding checks that have not cleared the bank statement or deposits in transit that due to timing have not cleared the bank. But if there are journal entries or old checks and deposits that have not cleared yet, it is best to look into these items to ensure that they correctly recorded. There normally should not be any outstanding journal entries on a bank reconciliation, as journal entries are usually only made to record transactions that were on the bank statement and not the general ledger.

After the bank account has been reconciled, it should be reviewed by the proper member of management. This should not be the same person that performed the reconciliation. The individual reviewing the bank reconciliation should review both the reconciliation and the bank statement. It is best when copies of the cancelled checks are also provided by the bank, but not all banks do this anymore.

When reviewing the bank reconciliation, the individual should do the following.

Make sure the bank balance on the reconciliation agrees to the balance on the bank statement.
Ensure that the balance per books on the reconciliation agrees to the general ledger balance.
Review any outstanding checks. Are any old?
Review any deposits in transit. Are any old?
Are there any outstanding journal entries? There should not be.
Review cancelled checks for vendor names. Do these sound familiar? Are they vendors that your organization should be paying?
Review cancelled checks for signatures. Did the proper person sign the check?
Review the bank statement and reconciliation for anything unusual.
Upon completion of the review, the individual should sign and date the face of the reconciliation showing the review.

The bank reconciliation is such an important monthly process because all of the organization’s transactions eventually run through the bank account. Make sure there is not anything running through your organization’s bank account that should not be. If your organization does not have a credit card, then there should be no credit card payments being made. (This could be fraud for someone paying their personal credit card.) Watch for transfers out of the account to other bank accounts. Are the other bank accounts the organization’s accounts? (This could be fraud for someone transferring funds to their personal account.) Is there a significant amount of journal entries on the bank reconciliation? (This could be fraud for someone trying to cover up cash that they have taken).

Protect your organization by having the proper controls in place to both reconcile your bank accounts and review the reconciliation in a timely manner each month.

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors

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.