Needed Records
Bank Reconciliations
What's Involved in Reconciling Your Bank Account ?
Selecting A Reconciliation "As Of" Date
You can actually reconcile your checkbook balance as of any date but the common practice is to reconcile your bank balance with your checkbook balance as of the end of the month. The date you select is called your "As Of" Date.
As we learned in the Introduction, a cutoff date as defined and used by a bank is the date that the bank determines and uses to prepare your bank statement as of a specified date. All your banking transactions (deposits, checks, and other adjustments) that the bank has processed that have occurred prior to and including this date are included in your current monthly bank statement. All transactions that occur after this date are included in your next month's bank statement.
Your bank's cutoff date has an affect on the number of checks that you'll have listed as Outstanding and the number of deposits that you'll have listed as Deposits In Transit. If you pick your Reconciliation "As Of" Date as the end of each month and your bank's Cutoff Date is the 15th of the month, you'll have 15 days worth of transactions for your month that the bank statement will not have listed on the statement. On the other hand, if the bank's cutoff date is a date close to the end of each month such as the 28th, there will be very few transactions that you have recorded in your checkbook for the month that are not also listed and included in the bank statement.
So what do you do ? One solution is to request your bank to provide your business with a cutoff date late in the month. Another possible solution would be to use the bank's cutoff date for the month as your Reconciliation "As Of" Date for the month. In other words, you would reconcile your bank balance and book balance as of the 15th of the month if the bank's cutoff date for the month was the 15th.
Why doesn't the bank have the same cutoff date for all its customers ? By having different cutoff dates, the bank is able to smooth out their work effort and manpower requirements. Instead of having to prepare and mail out all their customer statements at month end, they can stagger this task and mail some at the beginning, some in the middle, and others at the end.
Maintaining Accurate and Complete Records
In order to be able properly perform a bank reconciliation, a business needs to maintain a record of its deposits and receipts. This record may be a check book, check register, or a computer generated cash report listing the deposits, checks written, and the current balance of the checking account. If you recall, earlier we discussed the various records used to record deposits and checks.
If an accurate and complete cash record is not maintained it turns the simple task of preparing a bank reconciliation into a hair pulling nightmare. Also if cash drawers are not balanced and reconciled daily, deposit tickets are not prepared for each days receipts, or deposits for different day's receipts are commingled, it further compounds the task of reconciling your bank account(s). I didn't say you still can't reconcile your bank account. It only makes the task more time consuming if good records are not maintained.
You should use your check book, check register, or input the information into your computer program promptly for all checks written, deposits received, or any other transaction that affect your cash balance. Don't forget to make entries for monthly bank maintenance fees, check printing charges, returned checks (customer bad checks), bank drafts for insurance or loan payments, or any other charges. On the flip side of the coin (deposits), be sure to make entries for credit card transactions and any related credit card processing fees that are automatically deposited in your checking account.
What records do you need to perform this task ?
- Check Book, Check Register, or Computer Generated Cash Report for the month.
- Deposit Book and Duplicate Deposit Slips
- Daily Cash Reports
- Cash Receipts Listing for the month
- Cash Disbursements Listing for the month
- Prior Month's Bank Reconciliation
- Bank Statement for the month including your actual canceled checks and any other notifications from the bank.
What's next ?
Bank Reconciliation Steps