How would you reconcile a client's bank statement with their general ledger, considering potential discrepancies and adjustments?

Reconciling a client's bank statement with their general ledger involves a systematic process of comparing and adjusting both records to ensure they accurately reflect the same financial position. This process is crucial for identifying discrepancies, preventing fraud, and maintaining accurate financial reporting.

Here's a step-by-step approach to bank reconciliation:

1. Gather Documents: Collect the bank statement and the client's general ledger for the same period. Ensure both documents are up-to-date and accurately reflect all transactions.

2. Prepare a Reconciliation Worksheet: Create a worksheet with separate columns for the bank statement balance, the general ledger balance, and adjustments.

3. Start with the Bank Statement Balance: Begin by listing the ending balance on the bank statement as the starting point for the reconciliation.

4. Identify and Analyze Discrepancies: Compare the bank statement transactions with the general ledger entries. Look for differences in amounts, dates, descriptions, and any missing transactions.

5. Categorize and Record Adjustments:
Outstanding Deposits: Deposits made by the client that have not yet been processed by the bank. Record these as additions to the bank statement balance.
Outstanding Checks: Checks issued by the client but not yet cleared by the bank. Record these as deductions from the bank statement balance.
Bank Charges: Fees or charges levied by the bank that may not have been recorded in the general ledger. Record these as deductions from the general ledger balance.
Non-Sufficient Funds (NSF) Checks: Checks returned unpaid due to insufficient funds in the client's account. Record these as deductions from the general ledger balance.
Interest Earned: Interest earned on the client's account, which may not be reflected in the general ledger. Record this as an addition to the general ledger balance.
Electronic Funds Transfers (EFTs): Transfers made electronically that may not be reflected in the general ledger. Record these as adjustments to the appropriate account.
Other Adjustments: Any other discrepancies or adjustments identified during the reconciliation process should be recorded appropriately.

6. Calculate Adjusted Balances: Sum the adjustments and add them to or deduct them from the respective balances.

7. Verify the Reconciliation: The adjusted bank statement balance should equal the adjusted general ledger balance. If they do not match, re-examine the adjustments and ensure all discrepancies have been addressed.

8. Document the Reconciliation: Prepare a written record of the reconciliation process, including the date, a list of adjustments, and the final reconciled balances.

Examples of Potential Discrepancies and Adjustments:

Outstanding Deposits: If the client deposited a check on the last day of the month but the bank did not process it until the following month, this would create an outstanding deposit.
Outstanding Checks: If the client issued a check to a vendor on the last day of the month but the vendor did not deposit it until the following month, this would create an outstanding check.
Bank Charges: If the bank charged a monthly maintenance fee that the client did not record in their general ledger, this would need to be adjusted.
NSF Checks: If a customer paid with a check that bounced due to insufficient funds, this would be an NSF check and would need to be adjusted.
Interest Earned: If the bank credited interest to the client's account, this would be reflected on the bank statement but not necessarily in the general ledger.

Conclusion:
A thorough bank reconciliation is essential for ensuring the accuracy of a client's financial records. By carefully analyzing discrepancies, categorizing adjustments, and documenting the process, businesses can maintain financial transparency and prevent potential errors or fraud.