The bank reconciliation process provides assurance that a company’s accounting records and balance sheet reflect the proper amount of cash. Bank recs are also a vital step in reducing your risks against theft, fraud, and embezzlement.
Terms associated with the “bank rec” include:
1. Outstanding checks. Checks that were written (and have been recorded on the company’s books), but have not cleared the bank account.
2. Deposits in transit receipts that occurred but they are not yet reported on the bank statement.
3. Adjusted balance per bank the balance on the bank statement after deducting outstanding checks, adding deposits in transit, and recording any bank errors.
4. Adjusted balance per books the balance in the general ledger for the checking account after (1) deducting any bank fees or other deductions that are on the bank statement but are not yet recorded in the general ledger account and (2) adding any receipts on the bank statement that are not yet recorded in the general ledger account.
5. Journal entries. Entries to the company’s accounting records. Journal entries are required for bank reconciliation adjustments to the balance per books.
6. Bank credit memo an addition to a bank account made by the bank for an adjustment to a deposit, correction of a bank error, interest on bank balances, etc.
7. Bank debit memo a deduction from a bank account made by the bank for a bank service charge deposited a check that was returned, check printing fee, etc.
8. Demand deposits checking accounts
9. Time deposits savings accounts and certificates of deposit.
10. NSF check a check not paid by the bank on which it was drawn because the account’s
11. The balance was less than the amount of the check.
12. Float. This is usually the number of outstanding checks.
Your Credit Card Accounts In the world of bookkeeping and accounting, credit card accounts are technically bank accounts. They should be thoroughly reconciled at least once per month. It is preferable that your credit card accounts be examined each business day or two.
Who Should Do Them?
Bank recs should NOT be done by the same person who enters bills, write checks, and otherwise handles your company’s finances? The owner should find a qualified person who is completely outside of the company and has no friends or family in that company. Your CPA, accountant, Enrolled Agent, or even a qualified family member should do this work.
A thorough monthly bank rec would have prevented the many cases of employee embezzlement we have detected or had reported to us.