Updated: Sep 12, 2022
A bank reconciliation is the most basic control over your company’s most important asset on the balance sheet, cash. If you, as owner or management of your business, ask your accountant or bookkeeper for last month’s bank reconciliation, and they haven’t been completed, you should immediately investigate the causes of not performing this necessary, and simple, internal control.
Most accounting systems will automatically record transactions to the cash general ledger account when cash is applied to receivables, checks are written, etc. However, there are several types of cash transactions that typically require some type of manual or journal entry to the general ledger. For example, a wire or ACH payment to a vendor initiated by the bank, cash deposits of miscellaneous sales, and bank fees. Bank reconciliations can also identify transactions that were recorded incorrectly. Thus, your financial statements would not be accurate without the recording of all the transactions that affected the cash account for the period.
On a more ominous note, bank reconciliations can also make you aware of bounced checks from customers, or if any checks you issued were altered or misappropriated and cashed without your knowledge.
The vast majority of bank reconciliations are routine in nature and don’t reveal any irregularities. However, bank reconciliations should still be performed every month, for every bank account of the company, regardless of the level of activity. Ideally, they would be performed by an individual not responsible for recording the majority of the transactions in the general ledger, although this segregation of duty may be difficult to implement in a small accounting department.
NexTier’s professionals can assist, helping out from automating the bank reconciliation process, providing support to small accounting teams, or helping you ‘catch up’ after a period of where bank reconciliations have not been completed.