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Reconciliation

Monthly reconciliation is necessary to determine that the bank’s records and company ledgers are in agreement, and that neither party has made an error that goes uncorrected. In fact, UCC Article 4 (see Chapter 8) requires that companies examine bank statements within a reasonable time frame, not to exceed 30 days after the statement has been sent, and to report to the bank any unauthorized signatures or alterations.

Companies typically receive bank statements about 15 days after the end of the month, including cancelled checks and advices of other debits or credits. Reconciliation clerks add any deposits made after the statement closing date to the bank’s ending balance, subtract the total of any checks still outstanding, and make any necessary correcting entries to balance the bank and company ledgers. This process should reveal any fraud, but a month or more might pass before an investigation begins.

Banks can now provide automated partial or full reconciliation to the company within 5 to 10 days of month-end. Partial reconciliation (or “recon”) is simply a list of paid or cleared items, including check number and dollar amount that the company must then reconcile against its own ledgers. Full recon involves a matching of issued and clearing items by the bank, with reports on items:

• Issued and paid (or cleared)

• Issued but not yet paid

• Paid but not issued: that is, not entered on the daily issued file

• Force posted: items that involve duplicate check numbers due to check printing errors or fraud

Taken From : Essentials of Managing Corporate Cash