Monthly bank reconciliation

A bank reconciliation is not finished when the difference is zero. It is finished when every reconciling item is explained, every entry has a real offset, and the list of open items carries cleanly into next month.

What you need

• The bank statement for every account, including trustee and investment accounts held in the agency's name.
• The cash module (or check register) report for the same period, run after the last posting of the month.
• A general ledger extract for the cash accounts, dated by its last posting, not the day it was run.
• Last month's reconciliation and its list of outstanding items.

The routine

1. Tie the starting point. Last month's ending bank balance, book balance, and outstanding list must match this month's opening. If they don't, fix that first; nothing after it will make sense.
2. Tie three ways. Bank balance, cash module balance, and GL cash balance. A bank-to-book difference is a reconciling item; a cash-module-to-GL difference is a posting problem in your own system, and should be solved before anything is cleared.
3. Match and clear in the system. Clear items in the cash module, not only in a spreadsheet. Anything cleared by hand in the workbook but not in the system comes back next month.
4. List what's left, each item with date, reference, amount, payee or payer, and a note. Key notes to the transaction, not to a row position, so a refreshed report does not scramble them.
5. Explain each item. Give every one a cause and an owner. Unknowns go on an open-items list with a date; they do not go to an account called "TBD."
6. Book the entries for bank fees, interest, and items the bank recorded first. Every entry needs a real offset account. When you know what a variance is, code it to its real account instead of suspense.
7. Show suspense before and after. The reconciliation should show the balance of any suspense or clearing account at the start and end of the month, and the goal is zero.
8. Close with a bank-to-book block that starts at the bank balance, adds deposits in transit, subtracts outstanding checks, and lands on the book balance. Carry the outstanding list forward.
9. Snapshot it. Save the reconciliation, the reports, and the statement lines it cites as of the preparation date. Live reports change the moment new entries post.
10. Review and sign. Someone other than the preparer reviews the reconciliation within the month.

Patterns worth knowing

• Pension and payroll differences. When retirement contributions are remitted late, the retirement system's direct debits include late-payment interest. Tie the year's debits to the retirement system's payment summary; the difference from payroll is usually interest. A payroll-related check that never cleared, with no matching debit, can mean a contribution or a tax deposit was never made. Treat it as a finding, not a stale check.
• Double-counted receipts. An electronic receipt entered twice shows up as two identical deposits, one cleared and one not, against a single bank credit.
• Wrong cash account. A receipt recorded against another fund's bank account while the money landed in pooled cash shows up as a cash-module-to-GL difference, not as an unrecorded bank item.
• Unexplained wires to a trustee or lender are usually debt service. Check the debt schedule for the same date before calling it an open item, and make sure the debt records show it as paid.
• Year-end rollover gaps. Compare the June ending balance with July's balance-forward opening. Entries posted to the old year after the balance forward ran leave a gap; list them and re-run the year-end rollover.

What good looks like

• All three balances tie, or every difference is listed and explained.
• No reconciling item older than 90 days without a documented cause and owner.
• Suspense and clearing accounts at or near zero.
• Reviewed and signed within the month.

CACOA codes involved

Cash (1000-1049), pooled cash allocated to funds (1090), asset suspense (1080), liability suspense (2180), bank and fiscal agent fees (5260), and investment income (3401).