The process of account reconciliation is used when the transactions are recorded using the double entry system. In a double entry bookkeeping system, a single transaction has effects of debit and credit. These two effects can be cross-confirmed by tallying the account. Owing to this, all the accounts, if recorded properly, have balancing figures at the end of the month or year (or whenever the account closes). For carrying out the verification and comparison of your accounting records and of the bank statement or credit and debit card statements, it is important that you collect all your deposit and payment slips or receipts. On comparison, you will come to know whether the transactions on your slips tally with the bank statement or not. The most important thing that people tend to forget is including deposits or payments that have been made but not cleared, towards the end of the month. If you find that there are bank errors, deduct or add them to the ending balance. If your calculations do not tally with the bank statement, inform the bank about the mistake, so that the bank can prepare a reconciliation statement of its own. You may even have to omit a wrong entry for payment or add a posting which you may have forgotten. Inaccurate deposits and deductions need to be corrected. You may also check for bank charges like account handling fees. You will also have to add any kind of interest earned on the deposits. Nowadays, this term mostly refers to what we know as bank reconciliation. The term account reconciliation has a deeper meaning. It refers to the tallying of two sets of transactions. For example, after you use your credit card, you receive a receipt that you stack away. After you receive the monthly bill from your credit card company, you compare it with your stack of receipts. This is known as account reconciliation and if the reconciliation is regarding your bank account, it is referred to as bank reconciliation. Reconciliation is done by companies and individuals alike. The only difference is that companies use accounting software for this purpose (considering the size of the transactions) while individuals need to do it manually. The comparison of the two (accounting records and bank statement) is done in order to find the outstanding records and to correct errors. It is also carried out to find how many transactions went unrecorded in the previous accounting period. Step 1 First, gather all the relevant accounting information. This includes, updating your checkbook, getting a bank statement and gathering all your ATM withdrawal slips together. Step 2 Jot down the last balancing figure from the bank statement. Deduct the bank charges from the balance of your bank account. Compare the deposit slips with your bank statement. If there are any checks (deposits) that have not been cleared or approved in the statement before the last day of the month, add the amounts to the balancing figure. You can also add to the balancing figure, any kind of interest that is due, but not received. This final balancing figure is also termed as the 'running' balance. Step 3 In this step, start comparing your payment receipts with that of the bank statement. Compare the ATM withdrawal slips, the checks paid and the payments that are due but have not yet been passed by the bank. Take the sum total of all the amounts of the payments and withdrawals and subtract it from the running balance. Note down any monthly bills that are deducted directly from your bank account. Deduct the same from the running figure. For example, if your electricity bill is directly deducted from your bank account, then reduce its amount from your running balance. Once you are done with the deductions, the balance amount that you have should tally with the total balance in your bank statement. Step 4 Make a comparison of the amounts in your check register and bank statement. If the balance of the bank statement and running figure does not tally, there is some error. Use a calculator and find out the error in the ending balance of the checkbook register, beginning from the end of the last month's statement. Next, confirm all the payments and withdrawals (those that have been cleared or not cleared). Use your payment and withdrawal slips, while doing so. You will come to know whether the transactions on your slips tally with the bank statement or not. If it is not tallying, re-check the amounts. If you are a beginner at account reconciliation, one of the simplest ways to tally the accounts is by tallying the check register balance figure with that in your bank statement every month. For this, make two columns; one will be the book column and the other will be the bank column. The book column will show the balance of your check register on the date present on the bank statement. In the bank column, write the balance it shows in your bank statement for that particular date. Following is an example of a bank account reconciliation. It is recommended that you prepare an account reconciliation statement every month. You will find it difficult to prepare one initially, however, with practice you will be able to master it. Here are some useful tips for making an account reconciliation statement. ✓ Always maintain a record of all your debit and credit transactions in your check register. ✓ There are chances that you record a payment of $15 as $51, for instance. Hence, be careful while writing the numbers. ✓ Check if you have mistakenly added a transaction twice. ✓ Check if you have mistakenly cleared any item or missed clearing an item. ✓ Whenever you visit the ATM, collect the printed slip of the transaction and put it aside safely. Continue collecting the printed slips for every transaction, till the end of the month. ✓ Collect the deposit slips of checks and stack them sequentially. ✓ You may also check if you have recorded a deposit as payment or vice versa. ✓ Whenever you hand out a check, make it a point to record it in the checkbook register (the one that is attached to your checkbook). Today, many banks have online reconciliation forms. Also, there are many financial software which enable easy reconciliation of accounts. The process of account reconciliation will not only assist you in keeping a tab on your transactions but will also help you in managing your money effectively.