Reviewing the monthly bank reconciliations is part of a complete set of internal controls for your organization’s financial process and will be an item your auditors will look for.  However, for those of you new to this task or for those who simply want a quick break-down of the process, read on… I will try to simplify it for you in 5 easy steps.

STEP 1

A bank reconciliation report is fundamentally a comparison of your bank account balance according to the bank versus the bank account balance according to your accounting records.  You must therefore request the following three documents to do a proper review:

  1. Bank statement (from the bank) for the corresponding month.
  2. Reconciliation Report for the corresponding month (this is generated from the accounting software).
  3. Balance Sheet or Trial Balance for the corresponding month (also generated from the accounting software).

STEP 2

Your first task with these three documents is to make sure that the balances all agree.  Therefore, you will check that:

  • The “Ending Balance” on the bank statement has to equal the “Statement Ending Balance” on the Reconciliation Report.  If this is true, you are properly reconciling the bank to the books.
  • On the Reconciliation Report – look for the balance after adjustments.  It could be labeled “Adjusted Book Balance” or “Register Balance as of [date of bank statement].”  This amount must equal the balance for that account in the balance sheet or trial balance.  If this is true, you have just reconciled the bank to the books.

Congratulations! You have now completed the first step of ascertaining that the reconciliation report you are reviewing is relevant.  Now comes the review of the reconciliation items in the reconciliation report.

STEP 3

Look for the following sections in the Reconciliation Report to examine:

  1. Cleared Checks and Payments – scan this list for items that look unusual or potential duplicates.
  2. Cleared Deposits and Other Credits – scan this list for items that are not logical.
  3. Uncleared Checks and Payments – scan this list for items that are dated over three months ago.  Also look for duplicates and items with limited or unusual descriptions.  Any item that raises a question should be investigated further.
  4. Uncleared Deposits and Other Credits – review this list for deposits dated over one month ago.  Also pay special attention to deposits that appear to be electronic – these should all be marked as cleared unless they were processed at the end of the month.  As with the uncleared checks, follow up on any item that raises questions for you.
  5. Some accounting programs combine all checks and payments in one category with cleared and “in transit” amounts in separate columns.  You will find the same is true for deposits and other credits.
  6. Some accounting programs also list transactions that are in the system, but dated after the date being reconciled.  Scan through these as well to make sure there are no questionable or unusual transactions.

STEP 4

You are almost done!  The review process will not be complete unless you follow up on the checks that are over 3 months old, deposits over one month old or any other unusual or questionable item.  Request information and support until you are comfortable with the responses.  Only then can you approve the bank reconciliation.

STEP 5

Finally, keep records of your review by annotating your questions and inquiries on the document itself and saving all correspondence, responses and support provided.  If something goes wrong in the future, you want to prove that you performed due diligence before approving these documents.

Congratulations, you’re done approving the bank rec!

Maribel Ponist, CPA is CEO and Director of Client Accounting Services at Lumix CPAs and Advisors. She is a member of the Advisory Board for CPA.com and the AICPA Digital CPA Conference.  She also serves as a peer reviewer for the Maryland Association of Nonprofits Standards for Excellence Institute®. Follow Lumix on Twitter, Facebook, and LinkedIn for the latest insights, news, and updates in accounting and advisory services.

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