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This helps uncover omissions, duplication, theft, and fraudulent transactions. Reconciliation must be performed on a regular and continuous basis on all balance sheet accounts as a way of ensuring the integrity of financial records. Once any differences have been identified and rectified, both internal and external records should be equal in order to demonstrate good financial health. The objective of doing reconciliations to make sure that the internal cash register agrees with the bank statement. Once the errors have been identified, the bank should be notified to correct the error on their end and generate an adjusted bank statement.
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The errors should be added, subtracted, or modified on the bank statement balance to reflect the right amount. Consequently, any transactions recorded in the bank statement and missing in the cash register should be added to the register. If there are receipts recorded in the internal register and missing in the bank statement, add the transactions to the bank statement. The company should ensure that any money coming into the company is recorded in both the cash register and bank statement. Confirm that cash receipts and deposits are recorded in the cash register and bank statement The charges have already been recorded by the bank, but the company does not know about them until the bank statement has been received. Some of the possible charges include ATM transaction charges, check-printing fees, overdrafts, bank interest, etc. In such an instance, the transaction does not appear in the bank statement until the check has been presented and accepted by the bank.Ĭonversely, identify any charges appearing in the bank statement but that have not been captured in the internal cash register. An example of such a transaction is a check that has been issued but has yet to be cleared by the bank.Ī company may issue a check and record the transaction as a cash deduction in the cash register, but it may take some time before the check is presented to the bank.
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The transactions should be deducted from the bank statement balance.
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It is possible to have certain transactions that have been recorded as paid in the internal cash register but that do not appear as paid in the bank statement. Identify payments recorded in the internal cash register and not in the bank statement (and vice-versa) Identify any transactions in the bank statement that are not backed up by any evidence. The first step is to compare transactions in the internal register and the bank account to see if the payment and deposit transactions match in both records. Compare internal cash register to the bank statement The basic steps involved when reconciling transactions include the following: 1. However, since some transactions may not be captured in the system, human involvement is required to identify such unexplained differences. In most organizations, the reconciliation process is usually automated, using accounting software. The process of reconciliation confirms that the amount leaving the account is spent properly and that the two are balanced at the end of the accounting period. Reconciliation is the process of matching transactions that have been recorded internally against monthly statements from external sources such as banks to see if there are differences in the records and to correct any discrepancies.įor example, the internal record of cash receipts and disbursements can be compared to the bank statement to see if the records agree with each other.