What is a Three-way Reconciliation?
|September 4, 2012|
By Jonathan Yasko
Three-way reconciliation is the most accurate way of reconciling an account so that every cent is accounted for. The use of adequate, all-inclusive software makes the reconciliation easier and more efficient. All underwriters require three-way reconciliations to be performed each month for each account and maintain the proper reports for audit purposes.
How to Perform Three-way Reconciliation
The basics of the reconciliation consist of your ability to match debits and credits from the bank statement to the reconciliation portion of your software program. Note: All debits and credits assigned to your account from your bank (ex. account analysis fee, check orders, sweep, interest, etc.) must be entered into the software program under a file name so that those transactions may be cleared when you reconcile.
Inside the reconciliation portion of your software, you may be prompted to enter the Ending Bank Statement Date and/or the Ending Bank Statement Balance. Once you have entered in the designated information, then you can begin to clear the items in your software program as listed on the bank statement. After completion of clearing the transactions, you would then need to print the reconciliation. In addition to printing the reconciliation, immediately print the Trial Balance Report to verify that the reconciliation ties.
How It Works
The first part of the reconciliation is the book balance (your checkbook register). The second piece is the Adjusted Bank Balance. The Adjusted Bank Balance is a formula that consists of reports from the reconciliation:
Ending Bank Statement Balance
+ Outstanding Deposits/Wires Report
- Outstanding Checks/Wires Report
= Adjusted Bank Balance
The third and final piece is the Trial Balance, which is a separate report in your software program that must be printed immediately after reconciling. Note: If you do not run the Trial Balance immediately after reconciling, your reconciliation may not tie. If the Book Balance, Adjusted Bank Balance and Trial Balance match, you have a valid three-way reconciliation. If your Trial Balance does not match the Adjusted Bank Balance, you need to go through the items you have cleared to find a transaction that should not have been cleared or a transaction amount that is different from the bank statement/software program. You may also need to clear a transaction that previously had not been cleared from the bank statement. The reconciliation is not valid until all three pieces match to the penny.
Reports To Be Retained
A three-way reconciliation consists of five pieces of vital information. These reports must be retained for each account, each month for seven years. The complete reconciliation must contain at minimum the following: