Today, you’ll learn about the bank reconciling items list.
The list comprises three categories of bank reconciliation items. First, it includes the deposit reconciliation items. They are collections that are deposited but not yet recorded in a bank. They are also deposits that do not appear yet in the depositor’s records. Second, the disbursements reconciliation items are enumerated. These are the disbursements that are yet to reflect in a bank statement. Third, the bank errors are explained. Banks could also have errors when recording clients’ transactions.
The list below items are the most common reconciliation items and it may not include all bank reconciliation items. First of all, they are taken based on the actual bank reconciliation statements. Also, they probably appear on most bank recon reports. A Google search would show images of bank reconciliation statements showing the bank reconciliation items. Furthermore, every business organization has them every month. It is because of timing differences and errors. So, we gathered all the most familiar reconciling items below.
The ability to provide accurate bank reconciliation statements relies heavily on one’s understanding of the common things to expect when performing the reconciliation. For instance, if one knows the frequent items that occur when reconciling deposits, it is easy to identify deposits in transit and unrecorded deposits. Reconciling those items becomes easier because we know that they exist. Also, the identification of disbursements recon items becomes easier. Some checks are unrecorded on the depositor’s records while others are erroneously left out. Next, bank errors are detected fast. Banks records are not perfect.
The following are the most common bank reconciliation items listed in no particular order:
1. Unrecorded Collections and Deposits
Unrecorded deposits usually occur when collection officers may have not submitted the Daily Cash Collections and Deposits Report to an accounting office. First of all the accounting could not record the deposits. It could appear as an internal control problem that can be easily fixed by the prompt submission of the reports. Furthermore, unrecorded deposits could also reflect customers deposits with no information given to a company. Again, these deposits would become reconciling items in the bank reconciliation statement and they could remain unidentified at the end of the month.
Reconciling unrecorded deposits could be difficult to carry out. First of all, the identification of unknown depositors is quite tough. It is common when cash and check deposits were done through different geographical regions. Only the banks where the funds were deposited know the depositors. Communication between banks has to be done to resolve the issues. Moreover, communication with a bank is also tedious. Some banks could not entertain clients immediately. Those banks could have many clients at a given moment. Furthermore, once the depositors are identified the nature of payments is still anonymous. Why did they deposit such amounts?
This becomes a problem when the total amount of unrecorded deposits becomes significant. It can affect the reliability of the depositor’s cash balance. The balance is lower than what it should be however there is no information to warrant the recording of financial transactions. In addition, the funds could not be used for the operation of the business. They should be recorded fast in order to support the expenditures of an entity. Also, the revenue reported in the financial statements is understated. Unrecorded deposits could also be income still unrecorded at the end of the month.
Conversely, unrecorded deposits may sometimes present themselves as intentional in concealing unauthorized disbursements. First, offsetting unrecorded collections and disbursements is a serious threat to the business since it cannot be detected without understanding how to find them. Next, it is a common tactic used by terrible custodians. So, this scheme is detected by identifying unrecorded financial transactions every month.
2. Interest income
Banks often pay interest to depositors regularly, either every month, quarterly or yearly. In addition, they usually send credit memos when they have already credited the funds as shown in a bank statement. Those are used to record the interest income of the depositor. However, some credit memos have been left unrecorded due to some reasons at the end of a month. It is possible that the credit memos are sent late. Hence, an adjusting entry is required to recognize interest income in the accounting record. A debit to Cash in Bank and Credit to interest income is usually done to record the income.
3. Errors in recording collections and deposits
Accounting errors usually occur when recording collections and deposits. First of all, bookkeepers and accountants are just people. We know that they are trying their best to perform their job. Also, the lack of proper training could also jeopardize the effectiveness of the personnel involved in the recording. Training must be conducted regularly to have a reliable recording of transactions. Nevertheless, errors should be minimized.
4. Bank Charges
Banks usually send debit memos to their clients for bank charges. For instance, charges usually occur due to check requisitions. In addition, late payments of loans could be part of debit memos. However, for some reason, debit memos are not yet received or recorded by the account holder. Late sending of debit memos would delay the recording. So, they are not yet recognized in the depositor’s book and they become part of the bank reconciliation items.
5. Unrecorded disbursements
Unrecorded disbursements usually occur because of errors and mistakes, but sometimes it is also a result of weak internal control. These errors are corrected through adjusting entries, so they are lifted from reconciling items in a bank reconciliation statement.
In addition, if there is a misrepresentation, it must be investigated.
6. Errors in recording disbursements
As long as accounting is done by humans, errors are unavoidable. For example, the recording cash and check disbursements may have been recorded in another bank account. They become part of the reconciling items in a bank reconciliation statement.
7. Deposits in transit
These outstanding deposits often appear in the list of bank reconciling items. Almost all bank reconciliation statements have them.
However, when deposits in transit have not been credited in the bank statement for over a month, there may be issues of recording.
Verification of deposits must be started soon to uncover the causes.
8. Outstanding Checks
Undeposited check issuances are part of the reconciling items in the bank reconciliation statement. If checks are previously deposited, they are still under clearing process, usually about three to 15 days.
9. Long outstanding deposits in transit
As discussed above, some deposits in transit may remain in the reconciling items for over a month. These deposits are not in transit anymore because of possible accounting errors or because of insufficient bank accounts, in case of check deposits.
10. Stale Checks
Stale checks are previously part of the outstanding checks but are now over 180 days outstanding. In addition, they are corrected through adjusting entries by debiting Cash in Bank and crediting Accounts Payable.
Some banks accept stale checks, but most of them decline.