A bank reconciliation is an important tool in which one compares the cash activity in their accounting records with their transactions in the bank statement. This helps in managing a cash balance, and allows one to monitor their cash inflow and outflow. Frauds and unauthorized cash transactions can be checked this way as well.
For all these reasons and more, bank reconciliation is made on a general ledger.
- Compare the balance sheet with the general ledger, and see if the values match. Cross-check each value thoroughly.
- Some ledgers are made manually. These require a deep checking. Begin with the start balance on the ledger, which is the closing balance from the last month. Then, compare the check amounts on the general ledger and the bank statement. See the total deposit value on the two. If there is an error, it may be due to a wrong accounting entry, or a mistake of your bank.
- Make a note about all the outstanding checks that are listed on the general ledger that are not showing on the bank statement. Adjust the ledger with it and mark the checks and deposits that were paid off.
- Subtract the bank charges in the statement. List them on the general ledger.
- Now check the end balance on both the accounts. Reconcile the general ledger first by subtracting or adding all the outstanding checks and deposits. If the amount is equal, you have finished your task. If not, check for loop holes and correct the errors made.