A challenging part of accounting can be bank reconciliation. For some accountants, accolades are fun, for others, it’s nothing more than a tedious bore. However we look at it, it is an accounting function that needs to be done. Checks that are processed late can bounce, if not enough provision has been made for it on the company’s books. But recons, or “checking the balance of the book,” is just as important to entrepreneurs.
Bank recognition is simply the “matching” of a balance on a bank statement, on a certain date, with the balance in your cash book.
Bank charges are added to cash book payments, outstanding checks are deducted, and outstanding deposits are added. Standing or debit orders are added to payments and hopefully the balances will agree. Businesses should budget for payments from cash book balances, not bank statement balances.
Many numbered people have some understanding of bank reconciliations. There are times when bank reconciliations cannot be balanced. And this could be attributed more to missing information than to the skills of the person doing the reconnaissance. In such cases, the bank statements must be reconstructed.
A bank statement for a particular period could consist of several pages depending on the size of the entity in question. If a page is missing, the reconciliation will not balance. Transactions on the missing page obviously impact the bank recognition result.
What if you know a page is missing and you are unable to contact the bank for new statements? Banks typically archive statements older than 6 months and it could cause delays when requesting copies.
Here are some guidelines on how to reformat your bank statements.
* Check the sequence of bank statements.
* If a statement is actually missing, the closing balance, on one page, will differ from the opening balance of subsequent statements. Calculate the difference.
* If a difference has been established, check your check stubs to link that amount to an unidentified check number on the statement.
* Check recurring payments, such as standing orders, from previous months and see if that amount cannot be linked to missing information.
* List all payments, have check stubs and standing order amounts. Deduct all payments and compare them to the ending balance. The variance could be unrepresented checks or bank charges.
* Some bank statements provide accurate details on how many checks were processed and the total amounts on the first page. This simplifies the process.
Bank reconciliations can be challenging, but fun.