Simplifying the Bank Rec

By: Harold Averkamp

A bank statement reconciliation or "bank rec" is an important step in maintaining the accuracy of your financial records. When a bank rec is getting you down, it might help to recall this simple rule: PUT IT WHERE IT ISN'T.

Here are three unrelated items to illustrate this easy-to-remember rule:

Item 1. The bank statement shows a maintenance fee of $6.00. Since this bank fee is shown on the bank statement, you need to PUT IT WHERE IT ISN'T. This means you will need to subtract $6.00 from the cash balance shown in your records.

Item 2. Your records indicate that $150 was deposited near the end of the period indicated on the bank statement. However, the deposit is not shown on the bank statement. After confirming that the bank has received that deposit, PUT IT WHERE IT ISN'T. You need to add $150.00 to the balance shown on the bank statement.

Item 3. Of the many checks written, four have not yet cleared the bank. Since the four checks are in your records, but are not yet on any bank statement, PUT THEM WHERE THEY AREN'T. Deduct the amounts of the four checks from the balance on the bank statement. (Occasionally, one or more checks written in previous months are among the checks not yet clearing the bank account.)

Each of the items that you need to put into your accounting records will involve two accounts because of double-entry accounting. Item 1 will involve a cash account and an expense account. In accounting terms, this means a credit to the account Cash for $6.00 and a debit to the account Bank Fees Expense for $6.00. (No entry was required for Item 2 or Item 3, since these items are already in your records.)

After adjusting the balance on the bank statement and the balance in your records, the two adjusted balances should agree. If the adjusted balances do not agree, you need to compare every item in your records and on the bank statement. It is possible that you or the bank may have entered an amount incorrectly. Also recheck your math.

You can read a more detailed discussion of the topic Bank Reconciliation and many other accounting topics on AccountingCoach.com.

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