Procedure Documentation For The Monthly Bank Reconciliation Process

Bank Reconciliation Statement

With regard to the preparation of an organization’s financial statements, a bank reconciliation becomes a critical tool for the management of its cash balance. The process of reconciliation encompasses comparison of the cash activity in the organization’s accounting records with the transactions in its bank statement. The reconciliation process enables the organization to monitor all the cash outflows and inflows in its bank account (Richards, 2008). The organization is further in a position to identify unauthorized cash transactions and other fraud. Thus, it becomes a critical aspect for an organization to reconcile its bank account within a short period after receiving its bank statement.

The procedure documentation for a monthly reconciliation process involves the following steps:

Step 1: Adjusting the Balance per Bank

The activities within this step takes into account adjustment done to the balance on the bank statement to the corrected, adjusted or true balance(Walls, 2013). The necessary items for the adjustment of the balance per bank step are listed in form of the below schedule.

Step: 1

Adjustments in the balance per bank statement

Add: Deposits in transit

Deduct: Outstanding checks

Add or deduct: bank errors

Adjusted/Corrected Balance per Bank

Deposits in transit

These are amounts that have already been received and recorded by the organization, though are not yet recorded by the bank. This is because there may be a delay between the time one makes a deposit at the bank and the exact time the deposit is posted as an increase to his/her bank account.

The business increases its cash account for the amount of the deposit without delay. The delay by the bank in posting the deposit would therefore means that the company has a reconciliation item.

The balance in the bank would then need to be credited (increased) in order to reflect the true amount of cash. This can also be achieved through mastery of a rule of thumb “put it where it isn’t.” a deposit in transit is on the company’s books, but it is not in the bank statement.  The put it where it isn’t therefore mean making an adjustment to the balance on the bank statement.

Outstanding Checks

These are checks which have been recorded and written in the cash account of the company, even though not yet cleared bank account. Since all the checks written by the company are immediately recorded in its cash account it is therefore unnecessary to make adjustment on the company’s records for the outstanding checks. Even though, the outstanding checks have not yet reached the bank and the bank statement, they are listed on the bank reconciliation a decrease in the balance per bank (Richards, 2008).

Since the outstanding check is on the company’s books, but not on the bank statement, the “put it where it isn’t” deduces that it is an adjustment to the balance on the bank statement.

Bank Errors

A comparison should be made on the cash account’s general ledger to the activities of the bank statement. This would help in ascertaining if there are any mistakes made by the bank. The bank errors would range from an incorrect recording by the bank, omitting an amount from the company’s bank statement, or making an entry to an amount that does not exist on the company’s bank statement. An immediate notification to the bank should be undertaken by the company as it discovers any error. The company should not make a change of its records as the error was made by the bank.

Step 2: Adjusting the Balance per Books

This second step of bank reconciliation looks into the adjustments carried on the balance in the cash account of the company in order to have it as corrected, adjusted, or true balance. The below schedule gives a list of items involved in adjusting the balance per book step.

                        Step 2;

Balance per Books Adjustments:

Deduct: Bank service charges

Deduct: NSF checks and fees

Deduct: Check printing charges

Add: Notes receivable collected by the bank

Add: Interest earned

Add or Deduct: Errors in the company’s cash account

Adjusted? Corrected Balance per Books

Bank Service Charges

These are fees the bank deducts from the bank statement for the bank’s processingof the checking account activity, for instance, posting checks, accepting deposits or mailing the bank statement. Other forms of bank service charges are those fees charged when a company overdraws its checking account, and a fee charged for processing a stop payment order on the company’s check (Kew &Watson, 2010).

Since the bank service fees have already been deducted from the bank statement, no adjustment to the balance per bank. Therefore, the charges will be entered inform of adjustment to the books of the company. The company will decrease its cash account with the amount of the service charge.

NSF (not sufficient funds) Check

This is a check which was not honored by the bank due to insufficient balance in the account of the company. When the NSF check is brought back to the bank in which it was deposited, the bank then decreases the checking account of the company which deposited it(Bosua & Schutte, 2012). The charged amount equals the check’s amount plus a bank fee.

Since the NSF check plus the bank fee have been deducted on the bank statement, it is unnecessary to make adjustment on the balance per the bank. However, if any case the company has not decreased its cash account balance yet, for the bank fee and the returned check, for the company to reconcile it must decrease the balance per books.

Check printing charges

These charges occur when a company makes arrangement for its bank to carry the handling of the reordering of its checks. The printed checks cost is automatically deducted from the company’s checking account (Bosua & Schutte, 2012).

Interest earned

This appears on the bank statement when a bank has given the company interest on its account balances. The amount for the interest earned is added to the checking account balance on the bank statement.

Notes receivable

These are assets of the company. If a company’s notes are due and it asks the bank to collect it, the bank charges a fee. The bank then increases the company’s checking account by the amount collected (interest and principal) and decreases the account by the collection fee it has charged.


Errors made by the company calls for an increase or decrease correction to the cash account balance on the company’s books.

Step 3: Comparison of the Adjusted Balances

When the business has undertaken the adjustment on the balance per bank and balance per books, the two adjusted amounts should be equal. If they are no equal a further scrutiny of the process is carried to ensure that the balances are identical.

Step 4: Preparing the Journal Entries

Preparation of journal entries for the adjustments to the balance per books is then carried. Any adjustment increasing the cash account requires a journal entry which debits cash and credits the other relevant account (Bailey, 2012). An adjustment decreasing the cash balance requires a credit to cash and a debit to the other relevant account.

                     Gift Shop

                      Bank Reconciliation Statement

                For the month ending December 31,2008

As per Internal records (Books):
Cash balance from trial balance 12,675
Bank service charges -30
Check -250
Adjusted Check Book cash balance on Dec. 31, 2008 12,395
As per Bank Statement:
Cash Balance on bank statement 12,780
Deposit on Dec. 31, 2008 1,250
Deposit -1,000
Outstanding checks
Check #115 -645
Check #121 -5
Check#125 15
Adjusted Bank Statement Balance on Dec. 31, 2008 12,395

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