MCTA Treasurer’s Manual
Chapter 4 - Reconciliation
Reconciliation of Cash
Reconciliation of Bank
Utilizing a Reconciliation
Preliminary Work for Preparing
a Reconciliation Worksheet
Making Entries on the
Reconciling the Worksheet
Reconciling the Cashbook
to the Ledger
A municipal treasurer's primary function is to
conscientiously manage the municipality's cash. Such management requires
prompt and frequent cash reconciliations. The proper frequency of such reconciliations
in any particular municipality depends largely on the number and types of
bank accounts held by that municipality. At a minimum, however, the treasurer
should reconcile the bank accounts, the cash book and the general ledger
at least monthly.
A treasurer may choose from a variety of available methods
to reconcile a bank account, ranging from performing a manual reconciliation
to utilizing a comprehensive reconciliation service offered by a vendor. In
a community that issues 300 or more checks per month, the treasurer should
probably utilize a comprehensive reconciliation service. In such a case,
the treasurer would only have to provide the vendor with a list of all checks
issued in order to receive in return complete reconciliation reports. Communities
issuing fewer checks generally do not require a full reconciliation service;
however, they can generally benefit from some other, more limited, reconciliation
assistance. With advancing technology, additional new programs and materials
frequently become available. Treasurers should strive to be aware of these
advancements. Of course, all products and services provided by banks and
other vendors cost money. Consequently, the treasurer must weigh the cost
for any particular program or service against the benefit anticipated to
be derived by the community.
To perform a cash reconciliation, a treasurer must coordinate
and balance three, separate categories of financial records:
The statements for all municipal bank accounts under
the treasurer's control.
The treasurer's cash book.
The accountant’s or auditor's ledger(s).
The treasurer should calculate the aggregate amount
of cash on deposit in municipal bank accounts and balance this total with
the cash book prior to undertaking a reconciliation of these
records with the accountant’s or auditor's ledger(s).
of Bank Statement
The ensuing list relates a series of steps a treasurer
should take upon receiving a bank statement. The treasurer should:
- Compare bank charges with debit memos, and bank credits
with deposit tickets and credit memos.
- Arrange the cancelled checks by warrant in numerical order.
- Check off the cancelled checks that appear on a previous
bank reconciliation sheet.
- Check off in the checkbook or register the cancelled checks
issued since the last reconciliation. (Generally, a treasurer makes a check
mark to denote those checks paid by the bank and an “O” to denote the check(s)
In the process of reviewing checks, the treasurer
should heed all voided checks. Any check replaced with a new check must
be removed from the outstanding list to prevent double counting. Conversely,
any check not replaced must be added back to the accountant’s or auditor's
books as cash.
- Calculate the aggregate amount of all outstanding checks. In
performing this calculation, the treasurer should subtract the amount of
the checks paid by the bank since the previous statement from the amount
of the checks outstanding at the time of the issuance of that statement.
- Subtract the current total of outstanding checks from the
figure shown on the bank statement as the current balance. The resultant
number should equal the treasurer’s balance for that account.
- Undertake the following additional steps if the bank statement
disagrees with the treasurer's balance:
Undertake the following further steps if, after making the
appropriate adjustments, the statement continues to differ from the treasurer's
- Add to the bank balance any deposits that were
made at the end of the subject month that will not appear until the issuance
of the subsequent month's bank statement.
- Add or subtract any other debits or credits that
were posted to the account and included with the statement. Interest earned
by a bank account should be recorded in the cash book in the same period
that the bank recorded it.
- Add or subtract any other adjustments the treasurer
has recorded that were not shown on the statement.
- Carefully check the bank’s work, making a comparison
of the bank’s computer listing of checks it paid with the individual cancelled
checks. The treasurer might discover that the bank (a) charged the treasurer’s
account for a check it paid but failed to include the cancelled check with
the statement, (b) paid an amount slightly different from the amount specified
on the check or (c) erroneously charged the account for someone else’s
Undertake the following supplementary steps to check disbursements
if, after reconciling receipts, the statement continues to disagree with
the treasurer's balance:
- Subtract from the bank’s figure any deposits that
were outstanding as of the end of the preceding month.
- Subtract redeposits of “bounced” checks.
- Review deposit slips and verify transfers from
other depositories to ensure proper credit for additions to the beginning
bank balance. Add any deposits that were made but not credited.
- Add or subtract for any other adjustments. The
bank may have treated something as a deposit that the treasurer did not,
and vice versa. The treasurer may have voided a check and returned it
to cash, or may have returned “tailings” to cash as a receipt.
- Add the amount of each cancelled check returned
by the bank, warrant by warrant. For each warrant, the treasurer should
add to the warrant total the aggregate amount of the outstanding checks
for the warrant. This figure should agree with the total warrant amount,
after the warrant total has been adjusted for any non-check items.
- Upon discovering that a particular warrant contains
an error, carefully recheck the outstanding checks for that warrant.
Utilizing a Reconciliation
A treasurer who encounters difficulty performing
a reconciliation might find the preparation of a reconciliation worksheet to
be of substantial assistance. (See “Sample Reconciliation Sheet” appending
this chapter.) Although preparing such a worksheet may be painstaking and
time-consuming, the effort will aid the treasurer in discerning reconciliation
problems that result from the timing of transactions between banks. Ultimately,
the process will enable the treasurer to verify that:
Deposits made to all banks during the period balance
with the total of all deposit receipts.
Payments for each bank statement balance with warrants
paid during the period covered by that statement.
Any transfer from a bank balances with a transfer to
some other bank.
Preliminary Work for Preparing a Reconciliation
The following list itemizes various steps a treasurer
should take prior to making entries on a reconciliation worksheet. The treasurer
- List payments of checks, by bank, either individually or
in groups, on the date they were charged against the balance in the bank
account, verifying that each check, whether reported individually or as part
of a list, is recorded on the particular statement.
- Verify paid, direct deposit checks with a detailed list
of payments, ensuring that the amount on the list agrees with the amount
recorded on the bank statement. (Direct deposit in this instance means a
check transferred from the treasurer’s depository to the employee’s account,
which may be in the same or in another depository.)
- Ascertain that other bank charges (stop payment orders,
transfers to other depositories, etc.) are accompanied by bank or municipal
- Review deposit slips and verify transfers from other depositories
to ensure proper credit for additions to the beginning bank balance. For
deposits made but not included, the treasurer should add the aggregate of
these deposits to the ending bank balance as listed on the bank statement.
- Determine the aggregate amount of outstanding checks. The
treasurer should begin by comparing the amounts of all returned checks with
the amounts listed in the checkbook or register. The treasurer should include
the numbers of any voided checks with the numbers of the checks returned
with the bank statement in order that missing check numbers may identify
uncashed checks. The treasurer should then prepare an outstanding list,
adding up the amounts for which the missing checks were written. Some of
these missing checks may have been written in previous months but remain
uncashed at the time of reconciliation. In totaling the amount of all missing
checks, the treasurer should, in the case of a small number of such checks,
list them on the back of the bank statement; for a large number, the treasurer
should itemize the checks on a standard check register form and attach it
to the bank statement. The treasurer should retain all applicable information
as a proof of reconciliation and in the establishment of an audit trail.
- List the ending balance of the bank account as recorded
on the current bank statement.
- Subtract the total of outstanding checks from the total
ending balance listed on the bank statement. The result should agree with
the balance in the treasurer’s checkbook or register.
on the Reconciliation Worksheet
After having completed the preliminary steps enumerated
above, the treasurer should enter information on the reconciliation worksheet
- On Line RW 1, the beginning balance for each statement
in the appropriate column.
- On Line RW 2a, deposits that were reflected as cash
receipts in the cash book during the subject period.
- On Line RW 2b, interest reflected on the bank statement
that did not appear as a cash receipt in the cash book during the month being
reconciled. By keeping this amount on a separate line, the treasurer can
isolate timing differences that normally occur between the cash book and
- On Line RW3a, total payments.
- On Line RW 3b, other charges. On occasion, banks
inadvertently charge for services such as NSF (non-sufficient funds) checks,
wire transfers, etc. Usually the bank adjusts statements in a subsequent
month, after the charges have been brought to the bank's attention. If the
charges are legitimate, the treasurer should check to see that they have
been entered on a warrant and charged to an appropriation. For purposes
of the reconciliation worksheet, the charges should be isolated from other
- On line RW 4, transfers in.
- On line RW 5, transfers out. Items usually identified
as miscellaneous debits and credits on bank statements are transfers initiated
by a treasurer between banks. Since these amounts are simply transfers of
previously recorded receipts or disbursements, they should be isolated from
deposits and payments. Unlike deposits and payments, which may be totaled
on this worksheet, each transfer should be entered separately.
- On line RW 6, the ending bank statement balance. If
this balance does not agree with the treasurer's balance, the treasurer should
examine the bank statement carefully to see what items have not been entered
on the worksheet.
- On line RW 7a, the aggregate amount of all outstanding
checks. To reconcile the bank statement balance, the treasurer must adjust
for checks that have not yet cleared the bank but remain payable. (See step-by-step
procedures on Page 4-2 & 4-3 above.)
- On line RW 7b, other adjustments for errors and/or
timing differences. The example on the sample worksheet appending this chapter
shows interest earned on bank statements. If, at the time of one reconciliation,
the cash book has been closed, then the treasurer should subtract these amounts
from the bank statement balances so that statements and the cash book will
reflect the same receipts. The sample worksheet also shows three bank charges. Later,
the bank may adjust these charges. However, until they appear in the treasury
records as payments, they should be added as charges.
- On line RW 7c, the amount of deposits in transit. Frequently,
transactions that occur on the final day of a period in the treasurer’s cash
book will not be reflected on bank statements until the bank’s next business
day. Accordingly, the treasurer should check the cash book for deposits
to make sure the last deposit appears on the bank statement for the period.
- On line RW 8, the ending reconciled balance. This
total, plus any cash on hand, should balance with the cash book, reconciled
cash, and the general ledger cash.
- The worksheet enumerates transfers in and out of checking
accounts to enable the treasurer to trace transferred monies from bank to
bank. If the total amount of transfers in does not equal the total amount
of transfers out, the treasurer should carefully check each transfer. In
the worksheet example, a transfer of $125,000.00 into the third investment
was not reflected on the bank statement; it has therefore been entered as
a deposit in transit.
- If the total amount of deposits on line RW 2a, together
with the amount of cash on hand, does not equal the total amount of cash
book receipts, the treasurer should review deposit slips and other documentation
in order to discover the reason for the discrepancy. Imbalances frequently
result from timing difficulties. Furthermore, if a community makes book
entries for payroll deductions but does not actually redeposit these monies,
the payroll deductions must be added to deposits in order for them to agree
with the cash book.
- In order to ensure that payments agree with warrants, taking
outstanding checks into account, the treasurer should perform the following
- Add together all payments.
- Add to the sum obtained the aggregate amount of
all checks remaining outstanding at the end of the month.
- Subtract from this sum the aggregate amount of
outstanding checks at the beginning of the month.
Upon discovering that payments and warrants do not
agree, the treasurer should determine whether (1) any payments occurred during
the subject period that were not on warrants or (2) any checks cleared the
bank but were on the first warrant of the following month.
Cashbook to the Ledger
After reconciling a bank statement to the treasurer’s
cash book, that cash book total should be reconciled to the accountant’s or
auditor's ledger. If these records do not agree, the treasurer should undertake
the following procedures to reconcile them:
- The treasurer should verify that transfers between trust
(or other non-operating accounts) have been entered in both the treasurer’s
and the accountant’s or auditor's books.
- Also, the treasurer should compare the total amount of monies
actually received with the amount recorded in the ledger(s) for the month. If
these amounts do not agree, the treasurer should verify that the Treasurer’s
Schedule of Receipts (end-of-month report to accountant or auditor)
agrees by detailed amount and classification with the cash book. If not,
the treasurer has made a reporting error and must correct that error.
- In addition, the treasurer should compare the total amount
of the warrants paid during the month with the total warrant amount recorded
in the ledger(s) for the same period. The last warrant paid should be the
last warrant recorded. Otherwise, a timing problem probably accounts for
The accountant’s or auditor's cash accounts in the ledger
should reflect only those cash transactions provided by the treasurer. Therefore,
undertaking the above steps should resolve any discrepancies between the cashbook
and the ledger. If they do not, the treasurer and accountant or auditor should
go through each entry to the ledger until they ascertain the reason for any
The treasurer should deal with
uncashed checks utilizing the procedure set out in Ch. 200A §9A. See Chapter
3 for a detailed explanation of this process.
Treasurers should retain bank statements, together
with all accompanying information, including returned checks, in accordance
with the record retention requirements of the Secretary of State.