Steps to Account Reconciliation

The procedure of account reconciliation is used when the transactions are recorded while using double entry system. In the double entry bookkeeping program, a single transaction has two effects. The effects of debit and credit are used along the way of the double entry system. The two effects could be cross confirmed by tallying the account. Due to this particular, all the accounts, if recorded properly, have balancing figures at the conclusion of the month or year (or whenever the accounts closes).

What is Account Reconciliation?

Nowadays, the term accounts reconciliation, mostly refers to what is known as financial institution reconciliation. The term account reconciliation has a more broader meaning. It refers to the tallying of two models of transactions. For example, after you use your charge card, you receive a receipt that you stack away. Once you receive the monthly bill from your credit card organization, you compare it with your stack of receipts. This is called account reconciliation. If the account reconciliation is regarding your money, then it is referred to as bank reconciliation. Account reconciliation is performed by companies and individuals alike. The only difference is that companies use accounting software with the objective (due to the enormous size of the transactions) as well as individuals, on the other hand, need to do this manually.

Account reconciliation is the process of comparison from the bank statement and the books of accounts or sales records. The comparison of the two (accounting records and bank statement) is done and discover out the outstanding records. The account reconciliation is done by individuals and companies to discover their assets and liabilities. It is done in order to discover, how many transactions went unrecorded in the previous sales period.

Steps to Account Reconciliation

Step 1: First, gather all of the relevant accounting information; this includes, updating your checkbook, obtaining a bank statement, gathering together all your ATM withdrawal as well as deposit slips.

Step 2: Jot down the last balancing figure in the bank statement, on the top of a paper. Deduct the bank charges from the balance of your money. Compare the deposit slips with your bank statement. If you will find any checks (deposits) that have not been cleared or approved within the statement before the ending day of the month, add the amounts towards the balancing figure. You can also add any kind of interest that's due, but not received in the balancing figure. This final balancing figure can also be termed as the 'running' balance.

Step 3: In this task, start comparing your payment receipts with that of the financial institution statement. Compare the ATM withdrawal slips, the checks paid and also the due payments that have not been passed by the financial institution. Total all the amounts of the payments and withdrawals and subtract it in the running total. Note down any monthly bills that are deducted directly from your money. Deduct the same from your running figure. For instance, if your electricity bill is directly deducted from your money, then deduct it from your running balance.

Once you're done with the deductions, the balance amount that you've should tally with the total balance in your financial institution statement.

Step 4: If the balance of the bank statement and running figure doesn't tally, then there is some error. Use a calculator to see the error in the ending balance of the checkbook sign-up, beginning from the end of the last month's declaration. Next, confirm all the payments and withdrawals (those which have been cleared or not cleared). Use your payment and drawback slips, while doing so. You will come to know if the transactions on your slips tally with the bank declaration or not.

The most important thing that people tend to forget to include is deposits which have been made but not cleared, at the end of the actual month.

If your calculations do not tally with the financial institution statement, inform the bank about the mistake, so how the bank can prepare a reconciliation statement of its personal. It is recommended that you prepare an account reconciliation statement each month. You will find it difficult to prepare one at first. Here are some useful tips to master it:

• If you visit the ATM collect the printed form of the transaction and place it aside safely. Keep on collecting a printed slip for each transaction, till the end of the month.
• Gather the deposits slips of checks and sequentially stack all of them.
• Whenever you hand out a check, make it a point to record it in the checkbook register (the one that is attached at the rear of your checkbook).

The preparation of the account reconciliation will help you in keeping a tab on your transactions and also assist in money management.