Today, you’ll learn why bank reconciliation is not balanced. When it is not balanced, preparing bank reconciliation can be difficult, which can also give stress to the preparer, which may require redoing. But reasons must be identified to avoid it.
Bank reconciliation is not balanced because of the mistakes made during its preparation. For example, the bank reconciliation procedure was not defined. Furthermore, it had not started from the earlier reconciliation statement. Also, the depositor’s record is messy and incomplete.
A messy record is tough to reconcile with the bank statement. For example, Official Receipts are not recorded in batches. They are recorded individually although there are thousands of transactions. Moreover, the records do not coincide with bank deposits. Deposits are usually done in batches, so there should be some kind of schedule to connect accounting records to deposits. This will lengthen the preparation of bank reconciliations because each transaction is matched individually, instead of in batches.
Journal entries do not have complete information. For instance, dates, check numbers, and descriptions are left out. Check numbers are needed during the reconciliation phase. Because they are incomplete, the bank reconciliation officer makes many mistakes and needs to review the supporting documents again.
Bank reconciliation mistakes cause unbalance reconciliations. Because of these reasons, starting from the beginning is necessary, which may take extra time.
The main reasons the bank reconciliation is not balanced are listed below:
1. Did not have a defined bank reconciliation procedure
A bank reconciliation procedure must be prepared to make the process mechanical. Indeed, a clear step-by-step guide can assist in the preparation of the report. It makes the work automatic. Also, the procedure will be just followed by a bank reconciliation officer. The routine can start with all deposits and then all disbursements e.g. checks. Hence, mistakes are avoided when there is a good bank reconciliation process.
The procedures should show how to begin the preparation of a Bank reconciliation. For instance, it should start with the reconciliation of deposits. This work is more difficult than the next one because it is done manually. Then, reconciliation of disbursements should follow, which is simpler since a bank statement has check numbers. Hence, there is a clear path that the reconciliation officer should follow.
2. Messy accounting records
Messy bank accounting records can cause an unbalanced bank reconciliation statement. To explain, incorrect check numbers in journal entries can confuse the bank reconciliation officer. This usually happens when the recording of check numbers is not correctly done. In addition, cash deposits in the accounting records are not prepared similarly to actual deposits. So, accounting records must be prepared accurately to balance the Bank reconciliation statement.
3. Did not start with the previous bank reconciliation statement
The beginning balances and reconciling items from the previous bank reconciliation statement are required to proceed with the present report. First, the reconciliation should start with the previous report’s unadjusted balances. All beginning balances should match the previous reports. Next, prior reconciling items must be merged with the current transactions. Previous outstanding checks are joined with the current check disbursements and then matched with the bank statement. Then, all recon items are shown in the final report. Hence, the preceding recon is important for the current bank reconciliation statement.
4. Did not reconcile cash deposits first
Cash deposits are the most tedious in a bank reconciliation. For instance, they are manually matched with the bank statement. Each deposit in the accounting records is individually paired with the amounts in the bank statement. It can also be made in batches. No automated software can perform this task as of this point. In addition, the bank does not show official receipt numbers in its statements. It could have been easier if they do. So, these reasons can make the bank reconciliation statement not balanced.
However, with the use of Excel’s SUMIF function, the task can be shortened and the reconciliation can be balanced.
Because the reconciliation of cash deposits is non-automatic, it should be the priority. First, add all current month’s cash deposits to the depositor’s book balance. Next, add all current month’s bank credits to the bank balance of the previous month’s bank reconciliation. Then, start the reconciliation process of deposits.
That process is simple, yet effective because the focus is moved to only deposits.
After the reconciliation of deposits, the bank reconciliation officer can proceed to disbursements. This process is now focused on disbursements.
5. Duplicate entries in the depositor’s and bank’s record
Double posting of cash transactions in the depositor’s records can cause the bank reconciliation statement to be not balanced. To find duplicate entries, Excel’s CountIf function can assist.
The function counts instances of entries, which helps find reasons the bank reconciliation is not balanced.
Banks also make mistakes, for example, double posting of check disbursements. It is also a good idea to check these postings because it may help balance the reconciliation.