Today, you’ll learn the types of errors in bank reconciliation statement.
What you will learn:
- Not including the previous months reconciling items.
- Not starting from the beginning balances.
- Did not separate and sort debits and credits
- Not using references
- Did not check for multiple entries
Back in school, learning about bank reconciliation was quite different from the practical experience of doing it for a company or clients. In school, the focus was on multiple-choice tests rather than hands-on preparation. However, over the years, I’ve identified common errors in bank reconciliation statements, and I’d like to share those insights with you.
I want to emphasize that adhering to the points below won’t guarantee a flawless bank reconciliation, but they’re crucial in preventing complications when you’re in the process.
If your reconciliation involves just a handful of transactions, you might not encounter issues without delving into the details here. However, when dealing with a substantial number of bank transactions, it’s advisable to steer clear of the errors I’ve outlined.
Not including the previous months reconciling items
When you’re new to bank reconciliation, a common mistake is overlooking the reconciling items from the last reconciliation.
This happens, especially if those items haven’t been entered into the cash book yet. I recommend adjusting all reconciling items in the next month to avoid these errors.
Unfortunately, sometimes accountants forget to record these transactions, leading to these issues. If you’re reconciling bank accounts and those transactions haven’t been recorded yet, it’s your responsibility to include the reconciling items from the previous months.
Check if they’ve been adjusted; if not, they’ll be part of the next bank reconciliation statement.
Not starting from the beginning balances
When reviewing a bank reconciliation statement, you’ll find two main balances: the unadjusted bank balance and the unadjusted book balance. Both represent the month’s closing figures. However, the usual practice is to begin the reconciliation process from these closing balances.
It might seem like the logical starting point, but a more effective approach is to initiate from the starting balances of the month.
By beginning with the beginning balances, you can proactively identify reconciling items. This means you already have a grasp of potential adjustments. You only need to verify if the reconciling items from the previous month have been addressed.
If they are resolved, you can exclude them from the current reconciliation. If not, you should include them in the current reconciliation to ensure accuracy.
Did not separate and sort debits and credits
When starting the reconciliation process, it’s crucial to begin with the initial balances from both your cash book and the bank statement. Begin by separating and organizing debits and credits using a spreadsheet for ease. Start with the debits from the cash book and credits from the bank statement since we’re focusing on the beginning balances.
Initiate the reconciliation with deposits. Arrange the debits from the cash book and credits from the bank statement in descending order by amounts, ensuring they include dates. This helps simplify the reconciliation process. Introduce an additional column for both debits and credits to facilitate reconciliation.
For deposit reconciliation, consider using batch numbers. Assign these batch numbers to debits, and when corresponding items are found in the bank credits, encode the same batch numbers. Validate the match by cross-referencing deposit slips or transaction numbers, especially for online transactions. Batch numbers can serve as references in your journal entry or as a sequence of numbers.
To identify cleared and deposits in transit, leverage functions like SUMIF or PIVOT tables. For the latter, use negative values for bank credits. This systematic approach streamlines the reconciliation process and ensures accuracy in your financial records.
Not using references
When you’re going through your bank accounts, it’s fine to skip using references on a spreadsheet. However, if you’re dealing with a large number of transactions, it’s crucial to incorporate references.
Take, for instance, reconciling book credits and bank debits – sorting both records with a common reference point is essential. Let’s say you sort book credits by check numbers, then use that as a basis for reconciliation.
Skipping references increases the likelihood of errors in your bank reconciliation. Using check numbers allows you to employ functions like VLOOKUP, aiding in finding values and spotting discrepancies, especially with uncleared checks. It streamlines the process and helps maintain accuracy.
Did not check for multiple entries
One common issue in bank reconciliation is overlooking multiple entries for the same bank transaction. Even if you’ve diligently compared references and aligned your book debits and credits with the corresponding bank entries, your reconciliation statement might still not balance. The culprit could be the unnoticed occurrence of a transaction recorded multiple times in your books.
Imagine your bookkeeper mistakenly recorded a check issuance three times, possibly due to an oversight. This type of error can significantly impact your bank reconciliation. Using functions like VLOOKUP may not catch these errors unless you specifically check for them.
While you could manually sift through your book credits to identify duplicates, a more efficient method exists. Employing the COUNTIF function enables you to quickly identify and address multiple entries in your bank transactions, providing a more accurate and streamlined reconciliation process.