Accounting Best Practices, Fifth Edition

12–8. Avoid the Bank Reconciliation

The last item completed before issuing financial statements is usually the bank reconciliation. A company’s bank takes a few days to compile bank statements for all of its customers following the end of the month, then a few more days pass while the statement travels through the mail. The typical company then receives it on about the fifth business day of the month, and someone in the accounting department must scramble to complete the bank reconciliation. Usually, there are bank fees noted on the statement that must be recorded on a company’s books, as well as any unrecorded checks (always manual ones that were never entered into the computer system) to be recorded. Because of the delay built into receiving the statement and the time needed to complete the bank reconciliation, many companies cannot reduce the time needed to complete their financial statements to less than five or six days.

The solution is to not include the bank reconciliation in the month-end closing procedure. By doing so, there is no need to wait for the bank statement to arrive, nor is there any last-minute rush to complete the bank reconciliation.

However, there is a significant risk to consider, which is that there is an expense located on the bank statement that, if not recorded, will have a major impact on the level of reported profits in the financial statements. For example, a large manual check representing a major expense is listed on the bank statement as having ...