5 Types of Transactions a Bank Reconciliation Looks at

A bank reconciliation looks at many types of transactions. For instance, unrecorded deposits are identified every month to ensure completeness and the existence of cash and cash equivalents, including revenue. Since there are more cash activities, we have listed the most common examples below:

1. Unrecorded deposits

A bank reconciliation usually searches for unrecorded deposits every month to identify and record all cash receipts and revenues. Indeed, there are deposits that are only uncovered after preparing the bank recon report. Many interest incomes are only discovered after the release of the reconciliation. The accounting office should recognize the interests as debits to cash and credits to revenue. So, bank reconciliation actually finds deposits that are supposed to be included in the cash book at the end of each month.

Customers sometimes make deposits without informing the entity which may result in unrecorded deposits. For this reason, the bookkeepers would not record the transaction until receipt of a bank statement. The entity cannot also force those customers to notify them. Those deposits must be identified for recording in the cash book.

A bank reconciliation also seeks all unknown deposits at the end of a month. In this case, those deposits have not been identified after the reconciliation they are unfamiliar. The amounts are usually large or small. It is better to record them as payable.

Unexplained deposits are initially recorded as cash and credited to other payables in accounting. First, they are monitored every month to assess. Then, they are reviewed if they qualify as revenue. Finally, they are recorded as income as the last recourse. Be sure that its age is already beyond two years.

2. Unrecorded disbursements

Unrecorded disbursements usually have three types:

  •  Check disbursements
  • Cash disbursements
  • Fund transfers

Checks are normally recorded in accounting prior to approval and release to payees. Notably, the accounting has to review and record all checks that are to be released. The office reviews all transactions in because it has all the supporting documents and records. However, when the checks are not approved, they will be reversed in the accounting immediately. So, released checks must have been already recorded by accounting.

Nonetheless, few checks would not be recorded because of some distractions. For instance, transactions may be plentiful each month and there is also a staff shortage. Work interruptions could also affect the completeness of the accounting records.

Unrecorded cash disbursements could also appear in a bank reconciliation statement each month. Truly, some bank withdrawals would not be recorded in the books because of miscommunications. For instance, the treasurer has not yet submitted the vouchers and supporting documents to the accounting. To clarify, each cash transaction must be transmitted to accounting to have a complete recording of cash transactions. Hence, a bank reconciliation statement looks, reviews, and shows unrecorded cash disbursements.

Some online fund transfers would not be recognized in accounting since some of them remained unreported. Because online cash transfers are easy to do, a treasurer may have failed to inform the accounting office of its wire transfers.

3. Deposits in transits

A bank reconciliation also looks at deposits in transits, for example, delayed deposits, erroneous recording of deposits, undeposited collections, and NSF checks.

Delayed deposits can be easily identified in a bank reconciliation. Indeed, those can be identified by observing the dates of the deposits in transit. To clarify, when most of the dates are over five days, it usually means that are delays.

Sometimes, deposits in transit take place because of errors in recording. Certainly, some cash and check deposits are reported in another account. Those items become unrecorded in one account and appear as outstanding to another bank account. However, it is normal to make those errors in accounting when listing deposit transactions. Hence, recording errors are made since another account is debited instead of the correct account.

Those lapses are usually corrected through the monitoring of deposits in transits. For instance, notice all outstanding deposits that are over five to ten days. Often, they should be regularly reviewed each month to know if they are still valid reconciling items.

Some deposits in transit include collections that are not yet deposited. For instance, receipts on the last business day of a month are sent to a bank only on the next month. This is mostly due to bank cutoff hours. Furthermore, some collections are not really transferred to a bank by a responsible officer. These can be setbacks in deposits. Moreover, cash may have been used for other purposes. Hence, deposits in transit can have the cash be deposited, which must be monitored regularly.

4. Outstanding checks

Look for long outstanding checks in a bank reconciliation. First, review if there are stale checks included in outstanding at the end of a month. Next, find checks that are recorded in another account instead of the correct account. Then, contact customers who have not deposited the checks. Long outstanding checks can be reverted to cash and accounts payable when over six months.

5. Outstanding fund transfers

Outstanding fund transfers should be regularly monitored for both internal and external transactions. For instance, with internal transfers, verify if transfers are recorded in both the sending and receiving bank accounts. Internal transfers require two journal entries. One in the sending bank account and another at the receiving end. In addition, for external transfers, review the accuracy of the amounts. Tracking outstanding fund transfers can help identify recording errors and misstatements.