A bank reconciliation, whether it is done monthly or daily, involves comparing your internal financial records (general ledger) against the corresponding amount on your bank ledger to identify unusual transactions that might be caused by fraud or accounting errors or any form of manipulation. More specifically, the advantages of requesting for bank reconciliation include:
- Detecting of banking errors such as double payments, missed receipt payments, transfer flaws, calculation errors or funds misappropriation
- Updating of any bank fees or monetary penalties in the books
- Spotting fraudulent transactions, expenses scandals or theft
- Keeping track of accounts payable and receivables of the business
Discrepanies are not uncommon and what needs to be done is track them and make the appropriate adjustments in your accounting records.
Malaysia Accounting Firm
If a company overlooks or ignores these discrepancies, the difference between the amount of cash in its bank account and the amount of cash it thinks is available based on internal records may cause problems such as bounced cheques, overdrawn bank account, overdraft fees or even an account termination. A JB Accounting or Malaysia Accounting Firm is able to assist you to rectify these issues.
The steps of completing such a reconciliation typically involve:
- Comparing the Deposits
Bank transactions and cash transactions are typically maintained by a cash book. The cash book has a cash column indicating available cash and a bank column indicating cash deposited at the bank. For the bank, deposits are recorded on the credit side in the bank books, and withdrawals are recorded on the debit side. Deposits in the company’s financial records are regularly compared with those in the bank statement to make sure what has been debited on one side and credited on the other matches up, and to take remedial measures when it does not.
- Adjusting the Bank Statements
Minor discrepancies due to cheques or or electronic payments not clearing in time is common and are easily adjusted. The amounts that are received and recorded by the business but are not yet recorded by the bank are referred to as Deposits in Transits. These reports must be added to the bank statement. Outstanding checks are those that have been written and recorded in the cash account of the business but have not yet cleared the bank account. They need to be deducted from the bank balance. Mistakes made by the bank with the bank statement are known as bank errors. Common errors include entering an incorrect amount or omitting an amount from the bank statement.
- Adjusting the Cash Account
Adding interest or deducting monthly charges, overdraft fees, Not Sufficient Funds (NSF) cheques and other errors in accounting typically will correct any discrepancies in the company’s cash account records. When discrepancies are not resolved after correcting these differences in timing, then bigger issues such as fraud or serious administrative issues might require addressing.
Some signs of fraud include:
- Cheques duplicated or their amount altered, or issued without proper authorisation
- Unauthorised transfers or withdrawls
- Missing deposits