Back to basics: bank reconciliations

Tips from John O'Brien, chair of the Community Accounting Network

One of the basic financial controls for an organisation is the bank reconciliation. This is the process where you ensure that your accounting records agree with those of the bank. If you are a trustee and you aren't sure whether this is done at least once a month, make sure you find out.

In your accounting records you should have a starting figure (opening balance) for the month. Record the amounts received and paid out to get a closing or 'book' balance. Then make a note of your bank balance at the end of the month and compare the two.

Some of your entries might not have cleared by the end of the month, so you need to adjust the balance. Take off the payments you've made that have not appeared on the statement and add any deposits. This 'reconciled balance' should equal your own book balance. If it does not, there is a mistake.

It's possible, but rare, for the bank to make an error - it's more likely that you have. You must make sure your records agree with the bank before moving on to the next month. It's a good idea to print off the bank reconciliation and have it signed off by another person before filing it.

If you don't do this, your accounting records are probably incorrect. Your reports are likely to be misleading and could lead to bad decisions.

Of course, the reconciliation does not mean all is well: there could still be mistakes. Or you might have nice tidy books and still be up the creek.

John O'Brien is chair of the Community Accounting Network and chief executive of CA Plus

Finance Advice

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