Bank reconciliation

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Bank reconciliation is the process of matching and comparing figures from accounting records against those presented on a bank statement. Less any items which have no relation to the bank statement, the balance of the accounting ledger should reconcile (match) to the balance of the bank statement.

Bank reconciliation allows companies or individuals to compare their account records to the bank's records of their account balance in order to uncover any possible discrepancies.

When ledgers were written manually, regular checks were important to ensure they remained in balance. It was important to have a reliable source against which to check the accounts ledger.

The statement of account from a bank would have been hand written by a clerk and checked carefully by the bank manager. The statement can be taken as a reliable source, as banks' primary business is to ensure their ledgers correctly tracked the flow of funds. Hence the bank balance at the end of a given period could be obtained from bank and matched to a bank ledger kept by a company's accountant.

1 Securities Reconciliation
2 References in popular culture
3 References
4 External links

[edit] Securities Reconciliation

Similar to the process of verifying that bank accounts are in agreement, Custodian banks who hold securities for clients must also verify that the count of securities held at the bank matches the client's account(s).

There are many different types of security reconcilements, such as between an investment manager and the Custodian bank, Fund Accounting or between the Custodian bank and a depository (such as Euroclear or The Depository Trust Company)

Security reconcilements are usually either positional or transactional in nature. In both cases, the reconcilement is frequently conducted at the security identifier level, such as CUSIP, ISIN, or SEDOL.

In a positional reconcilement, the shares are counted between two parties and compared. If the counts match, then the position is said to be in balance. If the positions do not match, then it is considered "out of balance", also referred to as a "break".

In a transactional reconcilement, only the changes from transactions are applied to accounts. The reconcilement occurs by matching offsetting transactions between the two sides of the reconcilement. If a transaction cannot be properly matched with its counterpart, it is left open and referred to as an "exception".

A transactional reconcilement can be more accurate when trying to resolve exceptions. In a positional reconcilement, the only fact known is that the positions do not agree; in a transactional environment, all of the details are available to allow for more granular research.

In some locations, reconciliations are required for regulatory reasons.^[1]

Most positions are reconciled daily to reduce risk, though for situations where positions are illiquid or traded less frequently (such at OTC Derivatives), they might be reconciled weekly or monthly.

[edit] References in popular culture

The character Bob Cratchit, a clerk in the novel A Christmas Carol by Charles Dickens, famously spent his Christmas eve completing the final 'bank reconciliation' for his employer, Ebenezer Scrooge. Only when reconciliation was complete could he go home for Christmas dinner with his family.