Bank reconciliation: example of problems

What can prompt 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 them could be identified with bank reconciliation, as an example of this can be found daily in businesses of all industries.

When banks send companies a bank statement showing the company's opening cash balance, transactions during the period, and closing cash balance, there are almost always differences between the closing cash balance and the company's closing cash balance. Some reasons for this are:

• Deposits in transitCash and cheques received and recorded but not yet cleared through the bank statement.
• Outstanding cheques: Cheques issued by the company to creditors, but whose 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 would be when a customer deposits a cheque into an account, but the issuer's account does not have sufficient funds to cover it.. In that case, the bank deducts the cheque that was previously credited from the customer's account.

Nowadays, many companies use specialised accounting software to reduce the amount of work and adjustments needed and allow for real-time updates. Corporate is an example of a comprehensive management system that can help minimise errors and improve outcomes in bank reconciliation.

Bank reconciliation problems: example of 3 of them

There are a number of issues to be taken into account, given that tend continually arise as part of bank reconciliation, examples include:

• Outstanding cheques continuing to remain uncleared. There will be a residual number of cheques that are not presented to the bank for payment for a long time, or that are never presented for payment. In the short term, they should be treated in the same way as any other unpresented cheque; but with the caution of keeping them on the list of unpresented cheques books of account. In the long term, it is advisable to communicate with the beneficiary to see if they ever received the cheque. Ultimately, the original cheque will probably need to be cancelled 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 likely be voided and a replacement cheque issued. But what if the payee subsequently cashes the original cheque? If it was voided with the bank, the same entity should reject the cheque when 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 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 voided with the bank immediately to prevent double payment. Otherwise, the aim would be to seek 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 instance, the original entry related to that deposit should be reversed, which will be a credit to the cash account to reduce the cash balance, with a corresponding debit (increase) to accounts receivable.

In addition to these problems that arise in bank reconciliation, for example, any of the three above; a final circumstance could arisethat the dates covered by the bank statement have changed, meaning some items are now included or excluded. This situation should only arise if someone from the company requested that the company's bank account closing date be altered.