Search

Reconciliation

During normal bookkeeping operations errors are made. In order to insure integrity of the accounts a reconciliation must take place.


Reconciliation is a process by which differences between the two accounts are itemized.


One of the most common accounts that get reconciled on a regular basis are the bank accounts.


Example:


Bank statement has the following entries:


Beginning Balance $2,000

Car Payment -$500

Payroll -$800

Deposits $2,000

Ending Balance $2,700


General Ledger has the following entries:


Beginning Balance $2,000

Cr. Car Expense $500

Cr. Payroll Expense $400

Dr. Deposits $2,000

Ending Balance $2,300


It is evident that an error was made during the period. Depending when reconciliation is performed, an error booking the payroll entry may have to be entered in a future period as an adjustment. For the current period a reconciliation will look like this:


The beginning always states the balance of what you are trying to reconcile. In this case it is the GL:


Ending GL balance $2,300


Underneath you will list all items outstanding that cause the difference between the two accounts:


Payroll Adjustments $400

Closing Bank balance: $2,700 (i.e. $2,300 +$400 = $2,700 which equals actual bank closing balance)