Bank Reconciliation — Local Government Edition
A standardised procedure for reconciling the organisation bank accounts to the general ledger on a regular basis to ensure all cash transactions are accurately recorded.
Purpose
To verify that the cash balance per the bank statement agrees with the cash balance per the general ledger, identify and resolve discrepancies, and ensure the integrity of cash reporting.
Scope
Covers all bank accounts held by the organisation including operating accounts, savings accounts, term deposits, and any trust accounts. Reconciliation is performed at least monthly and ideally weekly.
Prerequisites
- Access to online banking to download bank statements and transaction data
- Access to the accounting system with appropriate permissions for the cash module
- Prior-period bank reconciliation with any outstanding items carried forward
Supports Local Government Act compliance, freedom of information requirements, and public accountability standards.
Step-by-Step Procedure
Obtain the Bank Statement
Download or obtain the bank statement for the reconciliation period, ensuring it covers the full period from the last reconciliation date.
- 1.1Log into the online banking platform
- 1.2Download the bank statement for the reconciliation period in CSV and PDF format
- 1.3Verify the opening balance matches the prior-period closing balance
- 1.4Save the statement to the reconciliation folder for the period
Match Cleared Transactions
Match each transaction on the bank statement to the corresponding entry in the general ledger cash account.
- 2.1Import the bank statement data into the accounting software auto-matching tool
- 2.2Review and confirm auto-matched transactions
- 2.3Manually match remaining transactions by reference number, date, and amount
- 2.4Flag any bank transactions that do not have a matching ledger entry
- Match in batches by transaction type (e.g., all direct credits, then all direct debits) for efficiency
Identify and Investigate Unmatched Items
Review all unmatched items on both the bank statement and the general ledger and investigate the cause of each discrepancy.
- 3.1List all unmatched bank statement items (deposits and withdrawals not in the ledger)
- 3.2List all unmatched ledger items (entries not yet cleared on the bank statement)
- 3.3Investigate each unmatched item to determine whether it is a timing difference, error, or missing entry
- 3.4Categorise items as outstanding cheques, deposits in transit, bank fees, or errors
Process Adjusting Entries
Post any required journal entries to the general ledger to record bank charges, interest, direct debits, or corrections identified during reconciliation.
- 4.1Post entries for bank fees, charges, and interest not previously recorded
- 4.2Record any direct debit or direct credit transactions not yet in the ledger
- 4.3Correct any posting errors identified during the matching process
- 4.4Ensure all adjusting entries are supported by adequate documentation
Prepare the Bank Reconciliation Statement
Prepare the formal bank reconciliation statement showing the bank balance, outstanding items, and adjusted book balance.
- 5.1Start with the closing bank statement balance
- 5.2Add deposits in transit (recorded in the ledger but not yet on the bank statement)
- 5.3Deduct outstanding cheques or payments (recorded in the ledger but not yet cleared)
- 5.4Confirm the adjusted bank balance equals the general ledger cash balance
Review and Sign Off
Submit the completed reconciliation to the Finance Manager for review and sign-off.
- 6.1Present the reconciliation with all supporting documentation
- 6.2Explain any significant or unusual reconciling items
- 6.3Obtain the Finance Manager sign-off on the reconciliation
- 6.4File the signed reconciliation in the period-end folder
- Outstanding items from prior periods that have not cleared should be escalated for investigation
Quality Checkpoints
Common Mistakes to Avoid
Expected Outcomes
Bank reconciliations balance to within zero for all accounts each period.
All bank reconciliations are completed within three council days of month end.
No reconciling items are older than 60 days without a documented resolution plan.
Frequently Asked Questions
What is a deposit in transit?
A deposit in transit is a payment received and recorded in the general ledger but not yet reflected on the bank statement, usually due to processing timing. It should appear on the next bank statement.
How often should bank reconciliations be performed?
Bank reconciliations should be performed at least monthly. For high-volume accounts, weekly or even daily reconciliation is recommended to identify issues early.
Can I use the bank balance as the book balance without reconciling?
No. The bank balance and book balance will almost always differ due to timing differences, uncleared transactions, and items recorded by one party but not the other. A formal reconciliation is essential.
What should I do if I cannot identify a bank transaction?
Contact the bank for additional transaction details such as the remitter name or reference number. If the transaction remains unidentified after investigation, escalate to the Finance Manager.
How long should bank reconciliation records be retained?
Bank reconciliation records should be retained for at least five years in accordance with ATO record-keeping requirements and general financial record retention policies.
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