In accounting, a bank reconciliation process is the procedure by which the bank statement of accounts from an entity’s books is reconciled with the corresponding balance on its books. When a reconciliation is not performed, the information can become inaccurate and misleading. Any discrepancy between the two statements needs to be investigated and, if necessary, resolved.
A bank reconciliation can be performed manually by an accountant or by a bank. The accounting manager may initiate a manual reconciliation or he may ask for help from the bank’s bookkeeper. The accountant may conduct a manual reconciliation or he may consult with a bank accountant. A bank reconciliation must be conducted in order to properly reconcile financial statements between the books of the entity.
A manual reconciliation is performed whenever an accounting system does not report the balance that is due on a line by line basis, as required by banking laws. An example of this is when a financial institution receives a check for the sum of funds from a customer, but it does not report the balance due on that check. This type of inconsistency is called a discrepancy.
To complete a bank reconciliation properly, it must be done accurately and on time. An accountant can perform a manual reconciliation on his own, but he cannot do so accurately. The process should begin by collecting and interpreting all of the data contained in each financial statement and then comparing those data to the records that are located in the entity’s books.
There are four parts of a reconciliation process, and these include a statement of accounts, statements of transactions and income and an audit trail, called the audit trail. The first step in the process is to record all of the data that the accountant obtains from the statement of accounts. Then he must compile the information and compare it to the statement of financial transactions.
In addition to recording the data, he must also look at the balances on the ledger accounts. If the balance is positive, then there are no discrepancies in the accounts and the accountants have no reason to continue the reconciliation process. If the balance is negative, then the accounting process needs to stop and the accounts are questionable and the reconciliation must be discontinued.
It is not uncommon for an accountant to report the account balance when he performs the reconciliation. However, an accountant cannot report the actual balance on a statement of accounts until the statement of financial transactions has been processed. It is common for an accountant to review the statement of accounts during the reconciliation process in order to make sure that the reconciliation was completed correctly. It is also common for an accountant to provide a summary of the results of the reconciliation to the reporting entity before the statement of accounts is sent to the financial reporting organization.
Reconciliation is not always required by law. It depends on the accounting standards being used by a firm.
The next step in the bank reconciliation process is to collect the audited statements of financial transactions. This can be performed manually by the accountant or with the help of a computer. The computer system will then provide the results in a format that is compatible with the accounting system used by the reporting entity. For example, if the accounting system requires an auditor to be consulted, then the accountant must refer the user to the appropriate auditor.
An auditor is someone who is independent of the accounting profession who is hired to perform an audit of a firm’s accounting procedures. He has access to a computer and a tape recorder, which is used to record all of the activities performed during the audit process.
Once he has reviewed the accounts and reconciled them, the accountant needs to submit an audit trail audit. If a discrepancy is discovered, then the bank reconciliation process is over. The auditor submits his findings to the bank or another accounting firm and the case is closed.
The audit trail audit is critical to ensuring that the bank reconciliation process is done correctly and that the reconciliation is accurate. The audit trail audit also helps prevent audit fraud in the accounting profession.