6 Indicators the Bank Reconciliation is Complete

Want to learn whether the bank reconciliation is complete?

Read on.

This tutorial shows the most common ways to determine when the bank reconciliation is complete. For instance, it describes important sections of a bank reconciliation statement that must be reviewed. One example is to check whether the unadjusted book balance is equal to the balance shown in a cash book. Next, it requires verification of reconciling items. It is normal that an entity may have several reconciling items, so sampling can be employed during a review. Also, adjusting entries are suggested for identified book reconciling items. It is the job of an accountant to prepare adjusting entries for identified reconciling items. However, this tutorial may lack all required steps to validate bank reconciliation reports. Suggestions may be sent through our contact page.

Bank reconciliation statements are integral to financial statements. For instance, ideally, total adjusted cash balances of all bank reconciliation reports should equal the Cash balance presented in a balance sheet, unless there are unadjusted reconciling items. The reports serve as supporting documents. Also, there should be no issuance of financial statements without reconciliation reports. However, the reports may have not been prepared by some organizations. In addition, auditors would usually require bank reconciliation statements to render an audit opinion of financial statements.

This post uses an adjusted method of bank reconciliation statements for discussions. First, its usage is usually preferable by accountants, bookkeepers, and auditors. Most auditors prefer the adjusted method so that they can calculate cash balances that should be presented in a balance sheet. Indeed, other methods, bank to book and book to bank methods, are usually not used to reconcile banks accounts. Also, other methods do not show the remaining available cash balances in banks.

Adjusted Method of Bank Reconciliation Formula

Unadjusted Book BalanceXXX
Add/Deduct: Book Reconciling Items
interest income, unrecorded deposits,
unrecorded disbursements
Adjusted Book BalanceXXX
Unadjusted Bank BalanceXXX
Add: Deposits in transitXXX
Deduct: Outstanding checksXXX
Adjusted Bank BalanceXXX

1. Accounting records and bank statements are available

Accounting records and bank statements should serve as support to bank reconciliation reports. For instance, a cash book should be made available by an organization for each bank account. It ensures that each account is monitored and can be reviewed anytime. However, for electronic accounting systems, having one cash book for each bank account may not be necessary anymore. Furthermore, bank statements and subsidiary ledgers are usually attached to reports when submitted to auditors. The attachments enable a reviewer or an auditor to check the reports. Hence, a bank reconciliation statement is not complete when both accounting and bank records are not available.

2. The unadjusted book balance can be traced to the cash book running balances

Amounts to check in bank reconciliation statements are usually unadjusted book balances. First, they should be traceable in cash books of bank accounts reconciled. Cash books should support the amounts shown in bank recon reports. Generally, the ending balance of a cash book is equal to unadjusted book balance, unless reconciling items were already adjusted in the cash books. Most adjusting entries are recorded in the cash book in the following months. A bank reconciliation report needs revision when reconciling items are adjusted within the month of reconciliation. Also, when the amount of ending book balance and the unadjusted book balance are not equal, a bank reconciliation statement may be erroneous.

3. The unadjusted bank balance is equal to the ending balance of a bank statement

Generally, an unadjusted bank balance is equal to the bank statement remaining balance at the end of a month. Indeed, the bank section of a reconciliation report should start with the ending balance shown in a bank statement. Thus, when an unadjusted bank balance differs from a bank statement end-balance, the report is probably erroneous and still uncompleted. The report may require one or more revisions.

4. Reconciling items are reviewed

New and previous reconciling items are usually reviewed. First, each class of reconciling items is tested for validity. One example is through randomly selecting unrecorded deposits class and tracing amounts to a corresponding bank statement and cash book. Next, data presented in a reconciliation are verified with supporting documents. Those actions check the accuracy of data presented in bank reconciliation statements. In addition, classifications of reconciling items are revisited. It ensures that a reconciling item is correctly included in a class or a group. (E.g. deposits in transit, outstanding checks, and unrecorded deposits)

5. The adjusted book balance and the adjusted bank balance are equal

The adjusted book balance is calculated by addition and subtraction of book reconciling items to an unadjusted book balance. For instance, unrecorded deposits are added. They are to be recorded in a cash book since they are still not recognized in an accounting record. Also, unadjusted book balance is deducted by unrecorded disbursements. Some examples are unregistered check issuances, bank charges and unauthorized disbursements. In addition, treatment of recording errors is also adjusted, which depends on financial transaction.

The adjusted bank balance is derived by updating the balance based on reconciling items. For example, deposits in transit are added. They eventually clear in a bank and are already considered part of a depository balance. Conversely, outstanding checks are deducted. Checks are already issued and they would eventually be deposited in a bank by payees, unless they are canceled, returned and staled. Furthermore, bank errors are treated based on their effect on a bank balance.

Generally, both adjusted book and adjusted bank balances should be equal to establish that a bank reconciliation statement is complete.

6. Adjusting entries are prepared for identified reconciling items

Finally, a bank reconciliation is complete when suggested adjusting entries are prepared for identified reconciling items. First, all resolved reconciling items are top priority for clearing. Adjusting entries are usually done in the immediately succeeding months. Next, all unknown reconciling items are still being investigated, so the bank reconciliation may now be complete. Unknown items are hopefully resolved in the next coming months. However, unknown reconciling items are cleared by adjusting entries when still not corrected for over three months. One example is to recognize deposits without depositor info to other payables account.