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Jee asks: Since the bank reconciliation statement should be done on a monthly basis, say if a company has a lot of banks, is it possible to out-source the bank reconciliation to the bank itself and what are the disadvantages?
Answer: In my experience it is not possible to outsource reconciliations to banks because they do not usually offer this service.
It is however possible to outsource the task to a bookkeeper or accountant.
In order for a bank reconciliation to be done, access to the business cash book/s is required. A business with many bank accounts should have a separate cash book for each account.
I know of a lawyer who has five separate bank accounts. Bank reconciliations are performed twice a month for each using bookkeeping software.
There is bookkeeping software available, such as Xero, that has the capacity to link directly to the bank account. Every night the software automatically downloads the bank transactions into the cash book, which saves the bookkeeper a lot of time because they do not have to manually enter each transaction.
Also, many banks provide a special file that can be downloaded directly into the bank reconciliation section of the bookkeeping software so that the cash book can be automatically updated... another time saver.
Anita asks: I have an accounting problem concerning this bank reconciliation. Here is the entire scenario. I need to know how its done...can you help me?
Scenario: balance of $4,000.00
His bank statement showed a balance of $4,270.00
On comparison the following were found:
* check issued amounting to $2,500.00 has not been cashed
* the bank rejected checks amounting to $140.00
* standing order for a staples order of $700.00 was not noted.
* a customer paid $170.00 directly into the bank without any notice to us.
* bank charges of $160.00 were entered in the bank statement only.
* a dividend of $250.00 was paid directly into the bank and not recorded in the cash book
* checks for $1,650.00 were entered into the cash book and deposited in the bank but had not been cleared (deposited)
Prepare a bank reconciliation statement for the month.
The first thing to do is enter into the cash book any transactions that are on the bank statement but not in the cash book.
So, the starting cash book balance provided above is $4,000.00.
* add $170.00 customer payment
* add $250.00 dividend
* less $700.00 standing order for staples
* less $160.00 bank charges
Therefore, $4,420.00 take away $860.00 gives you a new cash book balance of $3,560.00
Then you are going to add up all the outstanding withdrawals and all the outstanding deposits. This refers to all those transactions that are in the cash book, but not on the bank statement.
* un-cashed check $2,500.00
* un-cleared checks $1,650.00
* rejected checks $140.00
* new cash book balance $3,560.00
* add: outstanding withdrawals $2,500.00
*less: outstanding deposits $1,790.00
Bank Statement Balance $4,270.00
Maryam asks: If the beginning balance on the bank statement is not the same amount as the beginning balance in the cash book, for preparing the reconciliation how can we adjust the difference in the beginning balances?
How to fix the problem depends on whether you are using book-keeping software or keeping a manual cash book. Below are suggestions for both, but first, you need to find out what caused the problem in the first place. If you have already found the problem you can skip this part.
To find the problem, you need to go through the previous month's cash book and bank statement.
(Remember that the actual bank statement will always have the right closing balance so any issues or adjustments will be found and made in the cash book or reconciliation.)
Finding the Problem
If you are using specialized bookkeeping software (like Quickbooks, MYOB, Sage etc.) the best thing to do is call their support line and ask them to guide you through fixing the problem or search through their on-line guide for an answer. If for some reason you cannot do this, try the following:-
Step 1 :
Undo the completed reconciliation for last month, enter in the missing transactions, redo the reconciliation but please note:-
Step 2 :
Enter the missing transactions from last month’s cash book into the current month of the cash book (use the date of the opening balance) and include them in your bank reconciliation for the current month. Even though these items are not on the current month’s bank statement you can still bring them in so that the closing balance of the reconciliation matches the bank statement. The disadvantages of this are:-
If you are using a manual bookkeeping system i.e. a handwritten cashbook, or excel spreadsheet, you should easily be able to go back through the previous month and do the necessary adjustments to ensure the closing balance matches the bank statement. Just remember however, if you have sales tax or VAT that has already been declared for last month, then simply follow Step 2 above.
What do to if this problem occurs at the end of the financial year
Note: One of the first things an accountant does at the end of the year is to check your cash book closing balance and reconciliations against the bank statement for the final day of the end of the financial year. If there are differences on that final day, he will want to know why, so you may as well let him know up front instead of waiting for him to contact you.
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