The Definitive Guide: Unrecorded Deposits in a Bank Reconciliation

This post explores unrecorded deposits in a bank reconciliation.

Unrecorded deposits are common when preparing a bank reconciliation statement. First of all, other people could transfer money to an account holder without notifying. This happens a lot when a depositor have many clients. In addition, a bank could credit an interest income. Some banks pay interest monthly, quarterly, or annually. Furthermore, there may be recording errors by both a depositor and a bank. Mistakes are unavoidable, especially with too many transactions in a month.

Well, it is okay to stop here because 90% of the question has been answered. However, it is recommended to continue reading.

It is more beneficial to learn how to spot unrecorded deposits while preparing a bank reconciliation. Indeed, identifying those deposits could eliminate unrecorded revenue and obligations. All income and liabilities from bank deposits are supposed to be recorded as they occur. Also, the reconciliation can be fast-tracked. A technique that can identify unknown deposits fast reduces the time of a bank reconciliation. In addition, all bank transactions are accounted for without delay. It is one of the reasons a bank reconciliation is prepared for each bank account.

Interest Income

A bank and a time deposit may earn interest monthly, quarterly, or annually. For instance, a bank account is a savings account. It usually has the lowest interest rate in the market. Also, a bank can pay interest daily for a time deposit. It depends upon an arrangement between a bank and a client. Hence, a depositor can record the earnings after a bank reconciliation or after reconciling a bank statement. It can also be done through online access.

Credits from interest income are not usually recorded in a depositor’s account within the month that they should be recognized. Indeed, one reason is that a bank usually sends a statement, several days on an ensuing month. It is usually done after a due date on which accounting is required to submit a financial report to a management . Likewise, for some organization, online banking is probably not yet available. An interest income, in this case, is only recorded upon receipt a bank statement. In addition, it is better to wait for an official bank statement for recording interest income. A printed and/or officially emailed bank statement are already reviewed by bank officials.

Unknown Fund Transfers/Deposits

Unrecorded fund transfers/deposits can be problematic in a bank reconciliation. For instance, they are recorded in a bank statement credits without any information. Depositors should have informed an account holder, in a perfect world. Furthermore, unknown transfers could remain unknown for a long time. It happens all the time, especially when depositors are actually unknown. Likewise, extreme efforts are needed to know who deposited the money. An example would be calling a bank to gain more information. It is burdensome because it would take a lot of time to know more about the unrecorded deposits.

Unknown or unrecorded deposits are required to be immediately recorded in the books of a depositor. For example, a Cash in Bank account is debited and an Other Payables account is credited. There is a real increase in both cash in a bank and obligation, in this case, although sender is still unidentified. Similarly, a Cash in Bank account and an Accounts Payable account are already understated when anonymous deposits are not yet recorded. This could have been avoided when an originating bank/depositor had notified a bank account holder. Likewise, accrual accounting provides that financial transactions are recorded within the period it occurs. It ensures that all bank transactions are reported in the correct period.

Bank errors

Unrecorded deposits could also occur due to bank errors. For instance, a deposit is posted to another account number. It usually happens to a big financial institution serving several clients. Furthermore, a depositor did not check a validated deposit slip before going out of a bank. Too much trust could have been given to a bank teller, so the depositor did not bother to look at the deposit slip. In addition, a record of deposit was overstated due to an error. A cash deposit of $10,000 is credited as $11,000 to an account holder.

Finding Unrecorded deposits

Unrecorded deposits are identified by first reconciling bank deposits with a bank statement. For example, all book debits of a depositor are compared to all bank statement credits. It is done to match both records. In addition, using the SUMIF function and the batching technique, finding unrecorded deposits is easier. Bank statement credits, without batch numbers, are usually known to be not recorded in a depositor’s cash book. There is a template available on the home page of this website. Furthermore, all bank statement credits that are not found in book debits are usually unrecorded deposits. Try to study the “batching technique” for reconciling deposits.