How Many Ways To Prepare The Bank Reconciliation And How Frequent Should We Prepare It

Question:- I understand that bank reconciliation is the mechanism for checking the general ledger balance( “book balance” ) against the bank statement bank.

So can you tell me (a) how many ways are there to prepare a bank reconciliation and (b) how frequent should it be reconciled?

In earlier articles, we have discussed reasons for a bank reconciliation and items appearing in a bank reconciliation and the how to prepare or the steps involve in preparing a bank reconciliation statement.

Answer to part (a):

There are three(3) ways to prepare the bank reconciliation namely:

  1. Take the book balance and reconcile it to the bank balance
  2. Take the bank balance and reconcile it to the book balance
  3. Take the book balance and reconcile it to an adjusted cash balance, then take the bank balance and reconcile it to the adjusted cash balance

Incidentally, many prefers method no 3 i.e. taking the book and bank balances and reconciling them to an adjusting cash balance. When this method is used, any reconciling items needed to get the book balance to the adjusted cash balance will require the preparation of journal entries to adjust the book balance. Any reconciling items need to get the bank balance to the adjusted cash balance will not require journal entries.

Answer to part (b):

As we understand that bank does make error and might not record everything properly. Hence, the bank reconciliation is getting very handy for this.

Therefore, the bank reconciliation should at least be reconciled monthly. The logic are as follows:-

  • The longer we wait to reconcile the balance per the book value and balance per bank statement, the more tedious it will become. With monthly reconciliation, the whole process become more systematic and easier to do.

  • Next, before the accountants can present the financial reports to their management, they would want to ensure that their cash at balance, bank charges, trade facilities charges, interest income, direct credit/tt from accounts receivables have all been checked and others are properly accounted for.

  • Bank reconciliation is often used as an internal check to detect accounting fraud.

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