Standard Operating Procedure: Monthly Bank Reconciliation

This Standard Operating Procedure (SOP) outlines the mandatory process for reconciling company bank accounts against internal general ledger (GL) records. The objective of this procedure is to ensure financial accuracy, detect unauthorized transactions, prevent fraud, and maintain compliance with audit requirements. This process must be completed within five (5) business days following the close of each calendar month.

Phase 1: Preparation and Data Gathering

• Ensure all bank statements for the period have been retrieved via the online banking portal.
• Verify that all cash receipts and disbursement batches have been posted to the accounting system for the target period.
• Export the current month’s General Ledger (GL) bank activity report.
• Confirm that the ending balance on the bank statement matches the starting balance of the reconciliation module in the accounting software.

Phase 2: Transaction Matching

• Clear Cleared Checks: Mark all checks that have cleared the bank as "cleared" in the accounting system.
• Verify Deposits: Match individual deposits listed on the bank statement against the "Deposits in Transit" report.
• Record Bank-Initiated Entries: Manually enter bank service charges, interest income, and automated clearing house (ACH) fees into the GL.
• Identify Outstanding Items: List all checks written but not yet cleared and all deposits made but not yet processed by the bank.

Phase 3: Investigation and Adjustment

• Investigate Discrepancies: If the bank balance and book balance do not reconcile, immediately review the transaction history for data entry errors (e.g., transposed numbers).
• Clear NSF Checks: Identify any "Non-Sufficient Funds" checks and reverse the original receipt entry in the ledger.
• Identify Missing Entries: Check for recurring auto-payments or subscription fees that may have been missed during the monthly entry process.
• Finalize Reconciliation: Once the difference between the Adjusted Bank Balance and the Adjusted Book Balance is zero, finalize and lock the reconciliation report.

Phase 4: Approval and Archiving

• Generate the final "Reconciliation Summary Report."
• Attach the physical or digital bank statement to the summary report.
• Submit the package to the Financial Controller or Operations Manager for secondary review and electronic sign-off.
• Archive the documentation in the secure "Monthly Reconciliations" folder for internal and external audit access.

Pro Tips & Pitfalls

• Pitfall - The "Timing" Error: Always ensure the cutoff date for your bank statement matches exactly with the cutoff date in your accounting system.
• Pro Tip - Daily Reconciliation: To save time at month-end, perform "mini-reconciliations" weekly. This makes identifying errors significantly easier than chasing a month's worth of transactions.
• Pitfall - Mixing Accounts: Never reconcile multiple bank accounts simultaneously. Always complete one account entirely before moving to the next to prevent cross-account transaction contamination.
• Pro Tip - Automation: Utilize bank feeds (API integration) to sync your bank activity directly into your accounting software to minimize manual data entry errors.

Frequently Asked Questions (FAQ)

1. What should I do if the reconciliation does not balance? Stop the process and re-check the "Beginning Balance" against the prior month's ending balance. If the beginning balance is correct, scan the ledger for duplicate entries or missed bank fees.

2. How long should we keep reconciliation records? Per standard accounting best practices and most regulatory requirements, reconciliation reports and supporting bank statements should be retained for a minimum of seven (7) years.

3. Who should perform the reconciliation? To maintain proper internal controls (segregation of duties), the individual responsible for reconciling the bank account should not be the same person responsible for issuing checks or processing cash receipts.