What is bank reconciliation?

Bank reconciliation is the process of comparing the company's book balance to the bank statement balance and identifying reconciling items such as outstanding checks, deposits in transit, and bank fees. For professional service firms, regular bank reconciliations catch errors, prevent fraud, and ensure accurate cash reporting.

Key characteristics

• Compares the book balance to the bank balance

• Identifies reconciling items

• Catches errors and fraud

• Should be performed at a minimum of monthly

• Part of the month-end close

• Requires investigation of discrepancies

Why it matters for professional service firms

Bank reconciliation is a fundamental control ensuring cash records are accurate. Unreconciled accounts can harbor errors or fraud that compound over time. Professional service firms should reconcile all bank accounts monthly and investigate any discrepancies immediately. Regular reconciliation provides confidence in cash position reporting.

Real-world example

Kevin's firm rarely reconciled bank accounts. When finally reconciled, discovered: $8K in unrecorded bank fees over 18 months, 3 outstanding checks totaling $4K that would never clear (vendors lost checks, reissued), and one fraudulent check for $2,500 (caught too late for bank recovery). Implement monthly bank reconciliation: reconcile within 5 days of the statement, investigate all discrepancies, and adjust the books for bank fees and errors. Monthly discipline caught a duplicate vendor payment ($3,200) the following month, and it was recovered in full.