The Power Of The Bank Reconciliation
Posted on March 11, 2016

It’s such a small thing to tie your bank activity to your books but it’s so important! In most businesses ‘cash is king’ and without cash the business would fail. Keeping an eye on the deposits, checks and what is outstanding can not be underrated. These small details will tell you how much money you have in the bank if every check was cashed, if any errors have been made, and can help discover fraud.

What exactly is a bank reconciliation? In a nutshell it’s a process that explains the difference between the bank balance on the business’s bank statement and the corresponding amount shown in the business’s own accounting records as of a particular date. That sounds pretty simple. Take your beginning balance and check off the checks and deposits and then you have your ending balance. Sometimes it is really simple, there aren’t many transactions and you have a super diligent bookkeeper. Other times it can get squirrely.

One of the first issues people will have when doing a bank reconciliation, is the beginning balance doesn’t tie to the bank statement. If it’s the first time an account is being reconciled it may be due to the balance being entered incorrectly initially. If it has been reconciled previously, it’s probably due to a reconciled transaction being voided, deleted or changed and then left unreconciled. QuickBooks has an audit trial report that is a fingerprint of everything that happens in the file during the dates selected. You can also click the “locate discrepancies” button to show list of changes to previously reconciled transactions. If the difference in the beginning balance doesn’t jump out at you it may be easiest to undo the previous reconciliation and redo it.  I know, I know, not necessarily fun but it may be the best way.

Another reason the bank reconciliation may not tie is due to an error in data entry. An expense may be entered as “17.97” instead of “17.79”. If your reconciliation is off by a small amount take a few minutes to glance through the transactions and compare the numbers. This is such an easy mistake to make but just as easy to fix! Once you’ve found the transaction, double check that the bank number is the correct amount and change it. Banks make mistakes too, that’s why it’s always good to double check the original document to make sure it was a data entry error.

Did you forget the bank fees or interest associated with the account? Leaving those items out will throw off your reconciliation. When you are starting a reconciliation in QuickBooks it asks you to enter the interest and bank fees, go ahead and do it then otherwise you may forget! You will set up the default accounts for these charges which saves you time when entering them.

One more thing that can mess up a bank reconciliation? Fraud! It’s not fun to think about but it’s out there. Deposits may be recorded in the software but not actually deposited to the bank. A check amount may be changed and cashed for a different amount than what was written and recorded. The bookkeeper also needs to keep an eye on the check numbers that cleared and investigate if checks numbers clear that seem grossly out of order from the other sequence that clears. Many types of fraud can occur so looking for inconsistencies is key!

Even if you don’t reconcile your personal account I hope you reconcile your business accounts! It’s a very simple thing that will help you keep an eye on your cash and detect errors and potential fraud.

Sincerely,

Jordan Ilderton

k1137528