The most important account to reconcile is the cash account. The amount of cash on the “books” should be consistent with the monthly bank statement balance. The Cash Flow statement should always be updated once the bank reconciliation is complete. Cash Flow problems are not fun, you never want cash to be understated or overstated when trying to prepare for the next check run. Bank Statements are prepared and issued the week after the month ends; it is good to start them as soon as received to allow ample time for research on any unknown items.
Things to Look for Before Posting the Bank Reconciliation:
All reversed checks are cleared with the correct check number.
All direct payments are cleared in the current month. Example: Credit card payments need to be reconciled to their monthly statements.
All deposits are cleared; if they are a “Deposits in Transit” they must be a reconciling item with confirmation they will clear the following month. These are usually posted on the last couple days of the current month.
Outstanding checks six months prior. It is beneficial to monitor so they can be properly taken care of. A check could have been sent to an incorrect address, or the check may need to be reissued. Once an outstanding check reaches the six-month mark each check should be researched and vendors contacted.
Errors to be aware of:
Checks can clear with a transposed number from actual check amount. This is a bank error. The bank will need to be contacted and an adjusting entry made when the bank corrects the mistake for the next month.
Checks can clear with the wrong check numbers. It is always best to make sure you are checking the amount and check number before clearing the item.
Duplicate deposits can be entered; this needs to be brought to the attention of the people posting the deposits so they can correct on their end.
If a deposit is not reflected in the bank statement, this could be a delay in attaining the proper information from the facility or the deposit could be entered into the wrong account and a simple transfer will need to be done.
Depending on the dates for certain fees, the bank could be showing the items in a different month than what you have posted. No matter what (even if something is incorrect) all entries need to reconcile to the current bank statement and then correcting entries will follow. Adjusting entries should be made to the general ledger cash accounts reflecting reconciling items to ensure an accurate reflection of cash on hand in each reporting period.
Most banking institutions have time limits ranging from 30 to 90 days to report discrepancies on transactions affecting your bank accounts. Timeliness of reconciling cash is critical. Following these simple steps will improve cash flow management and remove the stress from projecting cash needs when planning for payroll, debt service, vendor payments, and capital projects.