Reconciling both your BANK and CASH accounts – Part I

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In my travels, I have worked with many individuals, such as students and associates in public practice, clients and ex-clients over the years, and well .. even in general – ones who can pass a test, get an A+ on exams, have respectable degrees, high paying jobs, a lot of respect in the community .. yet – they can’t reconcile the bank.

I’ve discussed earlier about the concept of reconciliation .. which just goes to show that identifying the transactions is not the end-all process in reconciling your cheque book … This happens when you will find that generally, in a given month:

* you write cheques – some clear this month, some clear in following months
* you make deposits – some clear this month, some clear in following month
* the bank puts through some extra charges – service charges, interest, loan payments, etc.

What if your bank statement is a little more complicated than that?

In reality, I should mention that this is not just one client I am trying to describe, but rather a generalization of a lot of client’s “situations” that I have come across .. to illustrate ways that can make reconciling your bank seem evil at times, and can downright give you a headache! Personally, I like the challenge! However, I can see why some owners hate bookkeeping with a passion because of it, and why some bookkeepers may take too much time in reconciling the company’s bank accounts and risk situations that might tempt one to ‘plug’ a bank rec …

Here are more things to worry about

* Computer Cheques – Computer cheques are printed once a month to clear all accounts payable invoices on the last day of the month. For some reason they think that there will be no accounts payable if all bills are paid in the month. Yes – this is true – however, now there is an extremely large outstanding cheque list because usually these cheques are prepared and issued after the month-end date. I must also say, that your banker doesn’t appreciate seeing your bank account in an overdraft position from all these extra cheques you write (even though the cheques may be in your desk drawer and withheld) – if you are providing him with monthly or quarterly financial statements. A good accountant will probably reclassify these cheques at the year end.

* Manual Cheques – Manual cheques are issued by several owners and managers and often, not in sequential order because chances are they like to carry blank cheques in their wallets “just in case”. You almost have to see the next month’s bank statement to pick up all the cheques that cleared in the following month, dated within your current month.

* Blank Cheque Stubs – Even with the concept of having a “cheque stub” so you can keep track of the cheques that were issued, owners and managers often forget to fill in the details of the cheques that were issued, like payee of cheque, amount of cheque, date of cheque, etc. etc.

* Computerized Payroll – Businesses have computerized payroll services offering weekly payrolls or bi-weekly payrolls or bi-monthly payrolls, and automatically withdraw the amounts out of the bank.

* Pre-Authorized Payments – Everything is leased or loaned in the business so, why not have pre-authorized debit payments to make the payment automatically? It sure beats writing cheques! I see car loan and other loan payments (which not always breaks down the principal and the interest), car lease payments, equipment lease payments, computer lease payments, and non-business pre-authorization payments to cover personal loans and lease obligations. This may also be payments to major suppliers or liquor control commissions who have authorization to just take money out directly when a purchase is made, or have blank signed cheques in their possession and just fill in the amounts themselves. Some companies fill out blank cheques at the time of purchase while others may have an agreement to only fill them out after so many days after the date of purchase (like net 10, net 30, etc).

* Transfers Between Accounts – Companies with cash flow problems and many bank accounts or companies will tend to make sure the payment is made by the “right company”, even if there isn’t enough cash to cover the cheque. To prevent these cheques from going bad or NSF, there will be transfers back and forth among various bank accounts.

* Debit Card Purchases – Proprietor Owners (especially) like the convenience of just using their cash card to purchase everything, so they don’t have worry about accounts payable, cheques to carry or even have to worry about carrying cash! The only thing is, that the bank statement might tell me where the purchase was made, it doesn’t tell me what it was about and the breakdown for GST, was it a business expense, does it belong to a specific division or property, etc. etc. I have found in most cases that the receipts for instant debit card purchases are the ones most likely to be missing.

* Daily Cash Deposits – For businesses that rely on cash sales will generally deposit cash every day. This may be stores, hotels, wholesalers, and all types of businesses. Generally, at the end of the day a recap is made of all the cash receipts less cash expenses, and a “night deposit” is made. Sometimes, in times of good cash flow, it is not uncommon to make either weely cash recaps or deposit a week’s worth of individual deposits one time at the bank.

* Credit Card Deposits – For those of you with Interac machines and the ability to accept payment instantly electronically, chances are that you can receive payment in one of these ways: debit card, visa card, mastercard, american express card, and other credit cards like discover, diners club, etc etc. Each will differ in the ways that will reflect the timing in which you receive your funds. Usually, the debit cards will be instant, but some banks are generally VISA and others are MASTERCARD. As an example, the Bank of Montreal is mastercard and the ScotiaBank is visa. Generally, a visa payment directly deposited into a Scotiabank account will appear faster than if a mastercard payment or american express payment will appear.

* Third Party Deposits and Withdrawals – Just like the banks that are credit card companies themselves directly deposit money to your account, there are third party companies out there to help speed up the processing, for a fee. There are companies like Moneris (RBC/BofM partnership), DataWest (now Open Solutions Canada), etc. Some differ in the way they deposit your money into your account, by either deducting a fee off of the gross before the bank deposit hits your bank account, or giving you the gross amount of deposit, but offsetting with a daily credit card commission charge to your bank account. Some will just debit your account once a month for the credit card commissions. Others, like or DirectCash (publicly traded company) who may be used for ATM machines, actually pays you a commission to use their service, because they share the surcharge they collect to the end user who uses their service to both the location and their company.

* Utility Bills – While it is generally agreed that you can’t avoid death and taxes, it is generally agreed that you avoid utility late fees by setting up your bills to be paid automatically through your bank account. This would include phone bill, cell phone bill, internet bill, tv cable bill, hydro bill, water bill, electricity bill, property tax payment, business tax payments, and other recurring charges. Some charges are fixed and some are variable, and often the payment covers a prior period which the bookkeeper really does not know (as well as with the GST) unless they see each bill. Just like any other debit card purchase .. you need to see the receipt!

* PTB and Cash Withdrawals – Sometimes, the owner might want to just pay cash for everything .. which is okay, if someone like the bookkeeper knows what the owner was buying by looking at the receipts. For this reason, the owner might just take $50 out each day or a larger amount, if needed, when the owner feels like it – or, worse – as part of the deposit at the bank. Some banks accept deposits without writing out those deposit slips now .. and if you ask for a withdrawal, they most to your bank the NET amount onto your bank statement. It’s always a good idea to ask for separate transactions if you do this.

* Weird Cut-off – Generally, banks will cut off the business accounts at the month-end, although a lot of the times you actually have to request this. It saves them time being able to print statements throughout the month (a teller once told me) and this is why they try to have these weird cut-off dates for bank statements. It’s very annoying trying to reconcile bank statements that involve all of the above situations, but has a mid-month cut-off.

* I’m sure there is more – but, I can’t think of them at this time ..

This is Part (I) of two parts, because the post seemed to be getting long. In this part, I have tried to identy some of the common difficulties that can arise and stir up problems during the bank and cash reconciliation process. In the next part I will discuss ways in which I overcome each of the above situations and provide you with tips to help make reconciling your banks and cash accounts easier. There may be some “stuff for the taking” .. however at the time of writing Part (I) … I have yet to create any excel templates for illustration or for you to take.


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