A bank reconciliation statement (example) is a document which matches the cash balance in the balance sheet of a company with the corresponding amount on your statement. Reconciliation of the two accounts helps to determine whether accounting changes are needed.
Bank reconciliations are completed at regular intervals to ensure that the company's cash records are correct. They also help to detect fraud and any cash manipulation, so their value, in terms of control, is undoubted.
What may motivate the need for a bank reconciliation?
There are different reasons for a difference between the bank statement and the bank statement. accounting records of the company. Any of these could be identified with bank reconciliation, examples of which can be found on a daily basis in businesses across all industries.
When banks send companies a bank statement containing the company's opening cash balance, the transactions during the period and the closing cash balance, differences are almost always visible between the closing cash balance and the company's closing cash balance. Some reasons for this are:
Deposits in transitcash and cheques that have been received and recorded but not yet registered on the bank statement.
Outstanding cheques: cheques issued by the company to creditors, but for which payments have not yet been processed.
Charges for banking services: banks deduct charges for the services they provide to customers, but these amounts are generally not collected or recorded in the accounts.
Insufficient funds cheques:This is a common situation in bank reconciliation. An example of this would be when a customer deposits a cheque into an account, but the cheque writer's account does not have sufficient funds to pay the cheque.. In this case, the bank deducts the cheque that was previously credited from the customer's account.
Today, many companies use specialised accounting software to reduce the amount of work and adjustments required and to allow for real-time updates. Corporate is an example of a comprehensive management system that can help minimise errors and improve results in bank reconciliation.
Bank reconciliation problems: example of 3 of them
There are a number of issues to be taken into account, given that These arise continuously as part of the bank reconciliation, for example:
Uncleared cheques that remain unpresented. There will be a residual number of cheques that are not presented to the bank for payment for a long time, or are never presented for payment. In the short term, they should be treated in the same way as any other uncleared cheque; but with the caution to keep them on the uncleared cheque list in the books of account. In the long run, it is worth contacting the payee to see if he or she ever received the cheque. In the end, the original cheque will probably need to be voided and a new one issued.
Cheques that are cleared by the bank after having been cancelled. As noted in the previous section, if a cheque remains uncashed for a long time, it will probably be voided and a replacement cheque issued. But what happens if the payee then cashes the original cheque? If it was voided with the bank, the same entity should reject the cheque when it is presented. If this precaution was not taken, the cheque should be recorded with a credit to the cash account and a debit to indicate the reason for the payment (such as an expense account, or an increase in a cash account or a decrease in a liability account). If the payee has not yet cashed the replacement cheque, it should first be cancelled with the bank immediately to avoid double payment. Otherwise, the objective would be to request reimbursement of the second cheque with the payee.
Deposited cheques that are returned. There are cases where the bank may refuse to deposit a cheque, usually because it is drawn on a bank account located in another country. In this case, the original entry related to that deposit must be reversed, which will be a credit to the cash account to reduce the cash balance, with a corresponding debit (increase) in accounts receivable.
In addition to these problems that arise in the bank reconciliation, example as any of the three above; a final circumstance could occurThe dates covered by the bank statement have changed, so that some items are either included or excluded. This situation should only arise if someone in the company asked the bank to change the closing date of the company's bank account.
