How do I Carry out a Bank Reconciliation?

Detailing the Steps to be taken when carrying out an interim or Final Bank Reconciliation for a Period.

Written By Gerry Mckeown (Liquid error: internal)

Updated at April 25th, 2018

1.     Introduction:

You need to reconcile, from time to time, the system’s view or understanding of your several and various Bank Accounts’ status with the reality of that of your live Bank Accounts.  Discrepancies between the two can arise because of unforeseen Bank Charges, Interest Rate Changes, Errors, Refused Payments, unanticipated Receipts or inbound Transfers, and so on.  Hence the need for periodic Reconciliations perhaps resulting in amendments to the System Bank Accounts – or indeed, requests for refunds from the real Bank, or re-presentation of Receipt requests.

Normally, you will carry out this task from a regularly provided printed Statement of Account from your Bank (or one that you print off yourself through your On-Line Bank facilities).  Many Users of the System, however, will also supplement this process by uploading interim (daily, twice-weekly, weekly, etc.) electronically produced Bank Import Files. They will then “mark-off” or match many (but not necessarily all) of the transactions from the imported electronic statement with the System’s Bank Accounts as of that point in time.  This results in a significant reduction in the workload involved with the full Bank Reconciliation and also facilitates immediate response to any discrepancies (e.g. refused Receipts, Shortfalls, etc.) much closer to the point in time at which they arise.  To understand how this additional facility works you should refer to the Article entitled “How do I Use the Bank Import Facility to assist with my Bank Reconciliation?”.   Of course you can also accomplish this same productivity measure by printing off interim statements from your on-line Bank log-in and using them to carry out matching.

Nevertheless, regardless of how many interim imported files have been uploaded and “matched” (i.e. reconciled), it is still vitally important and wholly necessary that the full Bank Reconciliation process be undertaken as described hereunder - especially with regard to, and in advance of, the production of Management Accounts.

N.B.   If you have been using Bank Import facility you must clear all remaining transactions before commencing a full Bank Reconciliation.  If, on entering the Bank Reconciliation program, you encounter this message;

Then you should click on “Clear Imported Transactions” in the “Import Transactions” program in order to proceed with the Bank Reconciliation.

2.     Begin the Bank Reconciliation Process:

To access the Bank Reconciliation function Go To ­> Bank > Bank List and select the option shown below against the Bank Account you wish to reconcile;

This will invoke the following screen, which can also be accessed from Bank > Bank Reconciliation, and select the appropriate Bank Account from the Drop Down list:

N.B.  If there is a current open un-reconciled Bank Reconciliation episode for a particular Bank Account then it is not possible to proceed with a new Bank Reconciliation process until this previous one has been resolved and closed.  This does not mean, however, that once you have initiated a Bank Reconciliation episode that you must complete it there and then.  You can “Save” it at any stage and return to it later as many times as you want.  It only means that you cannot open up a new Bank Reconciliation until the previous one has been fully “Reconciled” and “Closed”. 

If the system warns you that an open reconciliation for a particular Bank Account exists, then you can return to it by clicking on “Reconcile Now” and choosing “Current Reconciliation”.

3.     Bank Reconcilliation using Printed Statements:

You need to have the Statement that you received from the Bank to hand when you begin this process.  The details from the physical Bank Statement are entered in the top left portion of this screen’s Header.  Enter the Statement No. (e.g. Page Number), or a unique Reference No. of your own choosing, into the “Reference” field.

Then, enter the Closing Date of the Bank Statement into the “To” field followed by the Closing Amount as stated on your physical Bank Statement into the “Closing” field.

N.B.  You now need to ensure that the amount in the “Opening” field (which is the displayed amount from the previous fully reconciled episode for this bank) corresponds exactly to the opening amount on your physical Bank Statement.  If it does not then there is something wrong and it must be resolved before proceeding.   Perhaps you are missing a Bank Statement page, or the opening date on your physical Bank Statement doesn’t match that of the closing date of the previous Bank Statement?   It cannot be because the previous Bank Reconciliation remains unresolved - you cannot commence a new Bank Reconciliation until the previous one is closed.  Failure to rectify this issue at this juncture can only compound subsequent reconciliation problems if you proceed further now.  In this example, the Opening Amount is zero – since this is the first reconciliation.

The data in the right hand part of the Header portion of this Window are the System’s view of the Bank Balance situation as of the “To” date.  The “System Details: Balance as at DD Mmm YYYY:” is the system’s calculated balanced as at this date.  If it doesn’t match the amount of the “Closing” field (i.e. the Amount you entered as being the closing amount on your physical Bank Statement as of the same date) then there is surely a need for a transaction by transaction Reconciliation!  (See 4. below).

If these two figures do match, then you can invoke the “Match All” button on the bottom left hand side of the screen followed by “Reconcile” and “Close” as in this example of the Bank US Dollar Account – which will then complete the reconciliation for that Bank Account.

4.     Transaction by Transaction Matching:

The other two figures (display only) under the System Bank Balance are the sum of all the System’s “Unreconciled Receipts” and “Unreconciled Payments” up to and including the “To” date.   As you tick off various transactions during the reconciliation you will see that these diminish in value.  To proceed with the transaction by transaction Reconciliation, Click on the “View Transactions” button.

If you have been using the Bank Import facility and/or if you have been updating your Bank Account by regularly matching off transactions either daily or weekly, then many of the transactions will show up as already matched.  Therefore, in order to focus only on the remaining un-matched transactions you should use the Drop-Down to display only the un-matched system transactions; 

Go through your printed Bank Statement (which is in the same order as your system presents its transactions – i.e. date sequence) and tick off the transactions that match as shown above.

When you have finished there are a couple of possibilities remaining as to why there is an imbalance;

               (i)           There are transactions on your physical Statement that are not in your System,

               (ii)          There are transactions in your System that aren’t on you physical Statement,

               (iii)         Both.

(i)           In this example it turns out that there was a Bank Credit for £5.00 on you physical Statement that didn’t appear in the System.  You now have the opportunity to enter this Bank Charge Refund here from this Window (and many other such Transactions) by clicking on “Create Transactions”.

To adjust for this particular difference, Click on “Bank Debit Journal” in order to now enter the Bank Charge Refund against the relevant Bank Charges GL Code;     When you “Process” the Debit Journal the system returns you to the Bank Reconciliation function.

(ii)          In addition, there appears to be a Deposit in the System transactions which doesn’t appear on your Bank Statement. On investigation it seems that the actual Deposit in the Bank was made to a different Bank Account in the Bank Branch – which now needs to be rectified;

On the assumption that the actual physical Bank Deposit was made to the correct Bank Account and that it is the System which is in error, you now need to correct this issue by making a System Bank Transfer from the one Account to the other (again by using the “Create Transactions” facility);

Having effected this transaction, and other discrepancies, you will arrive at the situation where the physical Statement and the System’s view of the Bank Account are in balance (with no Unreconciled Receipts or Payments) and therefore it is in order to “Reconcile” and “Close” this reconciliation episode;

5.     Un-cleared Checks and Miss-Matched Deposits:

There will also, from time to time, be situations where Un-cleared Checks need to be dealt with:  i.e. where you have made Check Payments to your Vendors - but some of which have not yet reached your real Bank Account but which are included in your System as a consequence of a Vendor Batch (Volume) Payment run.  

The “Reconcile” Button will remain greyed out until such time as the “Closing” Bank Balance from your Bank Statement is equal to the System’s “Balance as at DD MMM YYYY” (the “To” date) inclusive of any “Unreconciled Receipts” and “Unreconciled Payments”.  When this situation arises the “Reconcile” Button will “light up” and you can then “Reconcile” and “Close” this Bank Reconciliation episode.  Any unmatched Transactions at this stage, such as the one highlighted above, will then be carried forward and included in the next Bank Reconciliation.  Should it turn out subsequently that one or more of these unmatched transactions never enter the real Bank Account (e.g. lost Check) then you must subsequently take action to deal with it in both the Bank System and the Payables or Receivables Ledger as appropriate.

Similarly, there will also be occasions where Checks that you receive from others will be rejected by your Bank for various reasons (e.g. Undated or Unsigned Check, or, with a Date which is outside the “To” date).  Where these are included in a System Lodgment you have the facility to Click on the “+” symbol beside the Lodgment.  This will expand the Deposit and show the individual Checks making up the Deposit – with the facility to remove the item in question.

When you remove the Check from the Lodgment it still remains as a Transaction in the Bank Account where you can deal with it subsequently - by carrying it forward to a further Reconciliation (as previously described) or by taking appropriate action to Reverse it out of the system (see below).

6.     Amending and Deleting Transactions:

Should you find that a System Transaction differs in some regard to the Bank Statement and you believe the Bank Statement is the more correct, then you can amend the system transaction in a variety of ways - all of which will correct the transaction, not only in the Bank Account, but also in the associated Customer or Vendor Receivables or Payables Account.  For a full description of these facilities you should refer to the Article “How do I Amend, Correct, Reverse or Delete a Transaction? as there are many ways in which you can amend or correct system transactions.

Also, you cannot, as such, delete Transactions in your system’s Bank Account – but you can “Reverse” them.  To do this call up your Bank Reconciliation screen or Go To > Bank > Bank List and select “View Transactions” against the appropriate Bank Account;

Click on the “Internal No.” and this will bring up the following Window where you can carry out the actions shown;

This causes the transaction to be reversed in the Bank account and also in the originating Customer or Supplier's (Vendor’s) Account.   Also, the “Eraser” symbols will allow certain corrections to be undertaken here as detailed in the aforementioned Article.

7.     Banked and In-Progress Deposits:

You can have a number of Lodgments in preparation prior to a Bank Reconciliation.  Some of these will be “Banked” and some may not (“In-Progress”).  The system assumes that all Lodgments have been banked and therefore includes them in the system’s view of the Bank Balance and Transaction list.   As with un-cleared Checks if you leave any In-Progress Lodgments un-ticked during the Reconciliation process, they will be carried forward to the next Reconciliation.   It will, however, considerably ease the Bank Reconciliation process if you keep the number of open In-Progress Lodgments to a minimum.

8.     Un-Reconciling a Bank Reconciliation:

You must have Administration privileges to access this feature.  If you decide to Un-Reconcile a much earlier Reconciliation (i.e. several previous generations) then you should Un-Reconcile all subsequent Reconciliations - as amendments you make to the first one may cause transactions to flow into subsequent reconciliations. You should then, as soon as possible, Re-Reconcile all the Reconciliations that you have re-opened in their correct sequence.

To view past reconciliations click on “All Reconciliations” as shown here;

This will bring up a list of previous reconciliations (just one in this instance);

Un-Tick the “Reconc” tick box and you will be asked to confirm that you will to proceed with the un-reconciliation.

9.     Other features & Facilities:

The “Match All” button allows you to selectively match or un-match transactions without having to Tick them off one by one;

You can also use the Grid to sort or locate transactions;

For example, click on “Tran. Type” to sort the transaction list by ascending sequence of Transaction Type.  Click on it again to sort in descending sequence.  Enter a Value (or a partial Value) in the Account Code field to restrict the transaction list to only those transactions which conform.  Similarly for all the other fields shown.

You can use the Record Notes facility to record and retain notes against a Reconciliation;

You can also add Documents (one or more) to a Bank Reconciliation;

If you have been using the Bank Import facility, a copy of the imported file is automatically added to the Document Manager for each import and which can subsequently be viewed or printed.

For further information on this facility refer to the Article entitled “How do I Attach Notes and Images to a Document.

You can print the Bank Reconciliation Report from here;

10.     Bank Reconciliation Total Overview Schematic: