The Role of Bank Reconciliations - by Ravi Patel

 

When an Entrepreneur hears bank reconciliation, the first thought that comes to mind is that it is an accounting thing. While it is indeed an accounting task, Entrepreneurs should be more familiar with it since it is a significant internal control feature.

Reconciling the balance on the bank statement to the amount in your General Ledger (GL) is normally a monthly procedure, but it can be performed more frequently depending upon the number of your banking transactions. The bank reconciliation process highlights unusual transactions such as customer checks recorded in the GL, but not deposited in the bank; unrecorded bank charges; checks that clear the bank, however, there is no record in the GL. Some of the reconciling differences could identify signs of irregularities in your financial system, including fraud. That last word should definitely get the Entrepreneur's attention.

A key internal control is assigning the responsibilities of performing and reviewing bank reconciliations. The designation of the proper persons should be based on adequate segregation of duties.

 

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