One of the most efficient and most commonly used tools for checking the accuracy of thebookkeeping system is a check known as the "Bank Reconciliation". This check is usuallycarried out once a month, at the end of the month.What is Bank Reconciliation?Let us assume for the purpose of this example that your name is Miles and that you are atthe end of June xx. Your accounts show that the current account at Western Union Bank hasa debit balance of $ 1,000 (as was explained, it is possible to relate to a current account as apersonal account. In other words on June 30, xx, the bank owes you $ 1,000). Logically, on June 30, xx, the Western Union Bank accounts should show that you, Miles, have a creditwith the bank of $ 1,000. If the balance in the Bank's accounts (as may be seen easily fromthe bank statement that is received each month by every business) is identical, this provesthat your bookkeeping is incredibly efficient, all communications with the bank, which isusually a main component in the activities of the business, were recorded correctly.In reality, the situation is a little different. Almost always, balance at the end of the monthcan
be reconciled because, in the main, as a result of data that appear in only one of the systems (our bookkeeping, the bank's accounts) but not in both of them at once. Theaim of the Bank Reconciliation is to attempt to locate the reasons for the discrepanciesbecause of which the two balances are not reconciled. It is clear that after "neutralizing" thereasons for the irregularities that are the cause of the lack of reconciliation, the balances inboth places must be identical.
For purposes of the example, let us assume that the Western Union Bank accounts are to bereconciled to June 30,xx.Details: The balance in Miles' account for the Western Union current account shows a debitbalance of $ 1,000. The bank's accounts, on the other hand, show that on June 30, xx, Mileshad a credit balance of $ 1,500. The reasons for the lack of reconciliation are as follows:
The amounts that appears on only thebank statement:
1.A credit for interest (current account) in an amount of $ 50 for June 30, xx (notrecorded in Miles' accounts).2.A debit for bank charges for the current account in an amount of $10 as of June 30,xx (not recorded in Miles' accounts).3.A credit for a bank error in an amount of $ 300 dated June 27, xx, that belongs toMiller. Miles' account was credited in error (similar name).
The amounts that appear only in Miles' accounts
1.A check for $ 160 that was paid to a supplier, that had not yet been paid in by thereconciliation date.
Preparing the Bank Reconciliation Statement
The basic technique for finding the reason that the accounts are not reconciled is to preparea "Reconciliation Statement", As a rule, check the following two possibilities for each item: