5 Best Practices for Bank Reconciliation

best practices for bank reconciliation

Today, you’ll learn the best practices for bank reconciliation.

The preparation of bank reconciliation statement becomes easy if you follow the best practices. In simple terms, those practices can guide an accountant to reconcile bank accounts faster than ever. Also, it reduces errors which can lead you to redo your bank reconciliation.

I had a terrible experience when I just graduated from my accountancy degree and then I applied for a job in a bank. Well, it did not go well because the exam was to solve a bank reconciliation problem. To make the story short, I did not pass the exam because all I know that time was only the bank reconciliation theory.

Bank reconciliation thought at school differs greatly from the real world. For example, at school, you a take test often with multiple choices. But at work or if you are applying for a job, balancing your bank reconciliation is difficult.

You can perform bank reconciliation if you follow the best practices. In this post, you’ll learn the best practices for bank reconciliation. Also, these practices may actually serve as the steps when reconciling your bank accounts.

Resolve Previous Reconciling Items this month

Let’s pretend that you are now an accountant, or maybe you work as an accountant. Well, the first thing to do is to resolve all reconciling items from the previous bank reconciliation. For instance, if there are unrecorded deposits last month, you have to record those deposits this month. However, if you can’t do that because of no information about the unrecorded deposits. You’ll have to forward those reconciling items in this month’s bank reconciliation.

You must record all reconciling items from the previous bank reconciliation this month. In case of unknown deposits, you can record them as debit: Cash in Bank and credit: Other payables. Of course, there will be no payee names because you do not know.

Not recording reconciling items increases the list of reconciling items, which understates or overstates your Cash in Bank Balance. In order to correct these errors, record all reconciling items immediately. In general, do not leave the reconciling items hanging in the bank reconciliation report.

Sort both your cash book records and bank statement

Sort both your accounting record’s subsidiary ledger and bank statement into debits and credits. Well, do this after you resolved all the reconciling items from previous months’ bank reconciliation. You do this by recording those items in the cash book. However, do not include those accounting entries which you made to resolve the previous months’ reconciling items.

We separate debits and credits for easy reconciliation. As an illustration, book debits are collections which you reconcile with the bank statement credits. Book credits are disbursements which you reconcile with bank statement credits. So, the reconciliation becomes easier to do.

Reconcile deposits first

Reconcile deposits first after you have sorted your debits and credits. Well, you begin by comparing all your book debits with the bank statement credits. Also, remember to remove those you resolve earlier thru accounting entries. This ensures that you are reconciling only the bank transactions this month. In addition, your reconciliation should include from book to a bank and vice versa.

Reconciling from book to bank and vice versa enables identification of unrecorded deposits. To clarify, from book to bank, you can recognize deposits in transit. Similarly, from bank to book, you can find credit memos and unrecorded deposits. As a result, you can reconcile both records effectively and efficiently.

Reconcile disbursement next

Reconcile disbursements after you reconcile deposits. Also, begin from book to bank and then bank to book. In other words, you compare your book credits and bank debits. Once, you find the reconciling items, you list them down so that you can include them in the bank reconciliation statement.

Balance the adjusted balances

Example of a bank reconciliation template for download

Prepare the bank reconciliation statement and be sure that the adjusted bank balance and adjusted book balance are equal. If not, then redo your bank reconciliation. As a result, you correct the mistakes you made while reconciling your records.

Prepare proposed adjusting entries

Prepare the adjusting entries from the list of reconciling items you find. Thus, it is easier to record those bank transactions in the ensuing month. Notably, you do not wait before you record those transactions to make your bank reconciliation reliable and efficient.

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