MCTA Treasurer’s Manual

Chapter 4 - Reconciliation

Reconciliation of Cash

Reconciliation Chronology

Reconciliation of Bank Statement

Utilizing a Reconciliation Worksheet

Preliminary Work for Preparing a Reconciliation Worksheet

Making Entries on the Reconciliation Worksheet

Reconciling the Worksheet

Reconciling the Cashbook to the Ledger

Unclaimed Checks

Record Retention

Sample Reconciliation Sheet

Chapter 4

Reconciliation

Reconciliation of Cash

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:

  1. The statements for all municipal bank accounts under the treasurer's control.
  2. The treasurer's cash book.
  3. The accountant’s or auditor's ledger(s).
Reconciliation Chronology

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).

Reconciliation of Bank Statement  

The ensuing list relates a series of steps a treasurer should take upon receiving a bank statement.  The treasurer should:

  1. Compare bank charges with debit memos, and bank credits with deposit tickets and credit memos.
  2. Arrange the cancelled checks by warrant in numerical order.
  3. Check off the cancelled checks that appear on a previous bank reconciliation sheet. 
  4. 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) still outstanding.)
  5. 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.

  6. 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.
  7. 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.
  8. Undertake the following additional steps if the bank statement disagrees with the treasurer's balance:
  9. Undertake the following further steps if, after making the appropriate adjustments, the statement continues to differ from the treasurer's balance:
  10. Undertake the following supplementary steps to check disbursements if, after reconciling receipts, the statement continues to disagree with the treasurer's balance:

Utilizing a Reconciliation Worksheet  

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 Worksheet

    The following list itemizes various steps a treasurer should take prior to making entries on a reconciliation worksheet.  The treasurer should:

    1. 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.
    2. 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.)
    3. Ascertain that other bank charges (stop payment orders, transfers to other depositories, etc.) are accompanied by bank or municipal authorizations.
    4. 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.
    5. 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.
    6. List the ending balance of the bank account as recorded on the current bank statement.
    7. 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.

    Making Entries on the Reconciliation Worksheet

    After having completed the preliminary steps enumerated above, the treasurer should enter information on the reconciliation worksheet as follows:

    Reconciling the Worksheet

    1. 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.
    2. 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.
    3. In order to ensure that payments agree with warrants, taking outstanding checks into account, the treasurer should perform the following calcu­lation:
    4. 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.

    Reconciling the 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:

    1. 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.
    2. 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.
    3. 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 discrepancy.

    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 variance.

    Unclaimed Checks

    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.

    Record Retention

    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.


    Table of Contents | Forward | Contributor’s List | Chapter 1 | Chapter 2 | Chapter 3 | Chapter 4 | Chapter 5 | Chapter 6 | Chapter 7 | Chapter 8 | Chapter 9 | Chapter 10 | Chapter 11 | Chapter 12 | Appendix