What is Account Reconciliation
This refers to balancing two sets of transactions, which is the banking statement and the company’s internal accounting statements. Sometimes it may be only the company’s banking statements, and then it is called Bank reconciliation. The main reason for conducting reconciliation is to find out if any transactions were left out in that accounting period. The reconciliation is used when transactions of an organization are done on double entry system of book keeping.
In double entry system of book keeping debit and credit transactions are tallied. The advantage of using double entry system of book keeping helps in recording all the receipts that come in and go out, thus enabling account reconciliation to happen smoothly.
Let’s find out how the process of reconciliation is done:
- Surplus cash in hand and all receipts to be deposited in the relevant bank accounts before the accounting period closes.
- Get bank statements for the entire period of reconciliation audit like annual, quarter or monthly.
- Collect all payment vouchers; cash deposit receipts, receipt vouchers, fixed deposit (FD) vouchers and update FD interest cards.
- Check whether all payments and receipts of the account are tallies between the account book and bank statements.
- If in case the account book and bank statements do not tally we can check for the following:
1. Check for all cheque payments issued has been debited from the bank account by the bearer.
2. Check for correct entries of payments and receipts in account book.
3. Check availability of all payments and receipts vouchers as per account book.
4. Re check correctness of Grand Total in every tally of account book.
5. Check for correct entries of all carried forwards on all pages of account books.
6. There is a possibility of debits by bank on Cheque Re-bounce penalties, get information of the same from Bank.
- The Bank reconciliation statement to be prepared as:
- Cash in Bank as per Bank Statement – A
- Cash in Hand as per Account Book – B
- Cash in Bank as per Account Book – C
- Cheque payments issued but not debited – D
- A = (B + C) – D Hence Reconciled
The following are the accounting statements that are required for Account Reconciliation for any given accounting period.
- Bank Reconciliation statement
- Balance sheet
- Income and Expenditure statement
- Value of Stock
- Value of property
- Statement of stock and property recommended to written -off from the account
Accounts reconciliation helps an organization to effectively balance all its financial transactions there by giving a perfect and clear picture of the financial positions to its external and internal customers.