Identifying and resolving any discrepancies and/or inaccuracies in cashflow, accounting records, and your bank and credit card balances is an important, if not tedious, part of business. Let’s talk through an important and not-to-be-overlooked element of accounting—bank reconciliation!
What is Bank Reconciliation?
Bank reconciliation is the process of cross-checking your accounting records against your bank or credit card records. The key purpose of this process is to ensure that your records are accurate and up-to-date, and to identify any errors either in your system or your banks.
This process is important because it is one the core ways to discover issues with your cashflow.
Below, we walk through the common issues businesses discover during bank reconciliation.
Errors and Mistakes in Data Entry
The most common version of this is out-of-order or missing digits (i.e. $1242.27 vs. $1242.74, or $850 vs. $85). This can also be misplaced decimal points ($1700 vs. $17.00), an entry that was accidentally enter twice, not entered at all, or a transaction being miscategorized and assigned to the wrong account.
Duplicate or Inaccurate Charges
A duplicate or inaccurate charge can occur in your accounts or your bank’s accounts. In your case, this is usually a transaction that is accidentally logged twice, or a data entry error that resulted in an inaccurate number. In your bank’s case, a merchant could have accidentally charged you twice, or an error with the payment facilitator could have triggered multiple charges to your card.
Checks and Deposits that Haven’t Been Processed, Have Been Held for Review, or Have Been Lost
In short, bank reconciliation commonly results in a discrepancy between your cash on hand reports and your bank records. This is usually because a check you have issued hasn’t yet been deposited or perhaps has been lost in the mail. You can also discover that a check you’ve deposited has been held for review or bounced, and any other issues that would effect your actual cash on hand vs. what your records show.
Debit and Credit Reversals and Corrections
It’s not uncommon for duplicate transactions to be discovered by the company tendering the charge and reversed on their own. But, you can also discover corrections and credit reversals. Of course, most important is to check that any returns have been logged appropriately in your accounting records, but you’ll also want to be sure these returns have cleared your bank. Many companies discover issues in this arena that ultimately throw off their records.
Fraudulent Transactions
Unfortunately, fraudulent transactions will often slip past your bank or credit card company’s fraud monitoring programs and alerts. Fraudulent transactions are typically found during the reconciliation process.
Less Common Issues That Are Identified During Reconciliation
Of course, data entry issues, double charges, and missed checks are a fairly common experience. There are, however, less common issues that are identified during reconciliation, many of which are much more serious with greater consequences. This includes:
- Embezzlement
- Fraudulent Checks
- Bank Errors
- Unaccounted for Cash Withdrawals
If you find yourself with an issue discovered during account reconciliation, it’s important to speak with your team. However, it’s a good practice to bring in an external CPA to review your records before indicating there is a problem to your team.
Conclusion
It’s important to remember that errors sometimes occur in accounting. Reconciling your bank and credit card statements is the best way to ensure the records you are using to make key business decisions are accurate and reliable. This process is also a great indicator of areas of your business and accounting process that might require new systems and workflows.
