The article focuses on the four aspects of bank reconciliations to help understand the best practices that should be adopted in all organizations. It is imperative that bank reconciliations be a part of your accounting practices. Businesses can follow these steps to avoid confusion, foresees accounting pitfalls, and ensures the highest standard of accounting.
The first step is to make a checklist of your state’s requirements concerning bank reconciliation process. Consult a lawyer or your legal department to ensure that you have a complete understanding of your duties under the law.
Each state has its own compliance requirements, which can range from monthly balancing, report retention, keeping copies of checks, and three-way reconciliation.
Monthly balancing norms usually dictate that bank reconciliations should be performed at least once a month. This process ensures that any snags are detected early, and corrections can be made in time.
Report retention involves keeping your records in order and storing them for reference at later dates.
Keeping copies of checks is a standard safeguard which many states have codified to help businesses.
Three-way reconciliation reports should be maintained because they are a useful way to catch discrepancies in an organization’s transactions. Various software’s are available which help you keep track of the same.
All the accounts of an organization should be balanced every month. A failure to adhere to this practice could result in several adverse consequences.
Further, you should make it a point to balance the accounts soon. This translates to completing the process before the end of the first week of the month.
Balancing your accounts involves two processes – Checking the software balancing report and matching it with your bank account statement. Each time I balance my accounts, I ensure that both these steps are completed in entirety.
If you find that there are uncleared checks which have been pending for ninety days, then you should make a note of those and follow up. Such uncleared checks could be a result of various faults, such as a bank error or unclaimed funds. This may result in an actionable such as voiding the checks or reissuing a checks.
Next, audit all uncleared deposits which have been outstanding for more than ten days. Since deposits usually clear within a day or two, it is imperative to check the cause of an unusual delay.
Finally, check the manual adjustments while auditing other transactions. Any transaction which has not been cleared deserves my attention. This includes bank adjustments, journal entries, and so on.
While reviewing the bank statements, you should ensure that you’re checking the actual bank statement and not a copy of the bank statement. The actual bank statement is a more reliable document from which to pursue enquiries when required.
In case your organization receives a digital copy, ensure that you are copied on the emails. Or know the procedure to log on to the account and download your copy as needed.
Match the opening and ending balance of your bank account statement with the software reconciliation report. Any discrepancy has the potential of being a major red flag indicating faulty accounting practices. Review the dates and amounts concerning each transaction. This should be in accordance with the market and organization policies. Check if these dates and amounts match with the same provided in your software report.
Withdrawals from the account should also be monitored closely. Check the persons withdrawing the amounts and ensure that it is an authorized withdrawal. Don’t be shy about placing restrictions on withdrawal with your bank. These restrictions could be in the form of approved lists, review options, and so on.
Both electronic withdrawals and withdrawals through other modes such as cash, certified checks, etc., should be reviewed. A comprehensive review of each withdrawal should be practiced.
Review the number of uncleared deposits. If these uncleared deposits are getting larger, then be sure to initiate inquiries. You should never ignore following up on uncleared deposits when the numbers get too large.
The same goes for uncleared checks which have been pending for a period of more than ninety days. Dropping daily and ending balance should be taken as a warning sign.
If you face multiple bank errors or manual adjustments, then try to find out the reasons for the same. There should be no accounts which are not reconciled or part of the balance.
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