Bank reconciliations and reconciliations

Bank reconciliations one of the most important matters that must be done at the end of each month, also, a bank accountant must daily review the book balances of bank accounts with the actual bank balances according to the bank account statement, whether current accounts, loan accounts, facilities, and knowing the reasons for the differences between the balances and working to resolve them and the bank reconciliation concept is that the bank accountant records the transactions that occur to the bank’s account through the documents that it has, whether notes receivable, notes payable, remittances, or letters of credit, at the same time, the bank sends an account statement to the company by detailing the transactions and the closing balance for month, and in case of a difference between the two balances, the bank accountant reviews the accounts and prepares bank reconciliation and the purpose of the bank reconciliation is to ensure that the accounting transactions are recorded correctly and the error can be by the company or the error from the bank and therefore when there is any difference be referenced to the letter of the deposit or the transfer.

Preparing a bank reconciliation 

In order to prepare a bank reconciliation the first matter if there is a difference in the opening balance in the current period between the two balances (the book balance of the company's accounts and the bank balance according to the bank account statement) then in this case the bank reconciliation is brought by the previous period because the outstanding balances for the previous period are reconciled in the current period, the bank account statement for the current period is also brought, and the bank account statement is also printed from the company’s books and accounts (sub ledger account for the bank account)

One of the most important matters that a bank accountant must pay attention to and help him a lot when preparing bank reconciliations, which is to obviously explaining the accounting journal entry of any banking process, so that when referenced to it, with ease in the sense that when the bank transaction journal entries are recorded, especially checks, all their details must be written obviously in the sense Check no.175 of the supplier (Al-Salam company) by the maturity date of 15-4 to National Bank of Egypt

Also, clearing accounts, such as notes receivable, notes payable and checks under collection, are important matters that, when used, help in matching accounts and bank reconciliation

It must be known that the credit balance in the bank statement is offset by the debit balance in the company's accounts, meaning that the bank debited to the company with these amounts and the company credited to the bank with these amounts, also, the debit balance in the bank account statement is offset by the credit balance in the company accounts in the sense that the bank is credited to the company with these amounts and the company debited to the bank has these amounts

Creditor transactions are reviewed in the bank account statement with the debtor transactions in the company’s accounts from the beginning of the month, these transactions mean deposits or transfers in favor of the company and the collection of checks and are reviewed for each transaction separately from the reality of the bank account statement and through the company’s accounts, if there is a difference in the balances, this could be due to an error in recording as a result of recording the value of the deposit less or greater than its value recorded in the bank account and in this case it is necessary to referenced to the original document in which the journal entry was recorded and if the journal entry was actually incorrect then it is modified, also, the difference may result from recording the value of the deposit incorrectly in a bank account instead of the correct account in the sense that it was deposited in National Bank of Egypt, but by mistake it was recorded to Banque du Caire account and it is also common matters that there is a deposit recorded in the bank account statement and not recorded in the company's accounts and you must search and know the authority that made the deposit where it could be a customer who transferred an amount to the company and the agent did not inform the finance department of this deposit, or that there is a miscellaneous revenue deposit, such as leases, etc.

In the case that all the balances are matching and recorded correctly, in this case the search for the reasons for the difference are being searched on the other side 

Debtor transactions are reviewed in the bank accounts statement with the creditor transactions in the company account statement and these transactions are checks, transfers or salaries that have been paid and should be reviewed in detail by the date and amount of each transaction and also there are bank charges that are deducted from the current account such as account statement expenses and commission of collecting checks clearing, commissions of opening a letter of credit, etc., and the differences between the bank account statement and the company account statement, it could be an error in recording the company’s books at the end of February, for example, the check was deducted from the bank statement on March, for example, or vice versa, or difference due to not recording bank charges and commissions in the company’s books or there is a transfer and check that has not been deducted in the company’s books, all these reasons are what lead to the existence of differences between the balance from the reality of the bank account statement and the balance from the reality of the company’s books and after the differences in the balance are selected if they exist and if he can solve them and preparing the required accounting journal entries during the period and the balance became matching then that is good and if he selected the differences and was not able to record the journal entries during the period it must be done a bank reconciliation statement, and these differences are in all accounts, whether current, loans or deposits, and the difference in loan accounts and facilities can be in the value of the calculated interest and commissions, and they should be reviewed well with the bank in order to prevent any manipulation

Bank Reconciliation Statement is prepared using a simple Excel sheet and selecting pending status, which are either

1-Deposits in the bank that were not recorded in the books due to the lack of knowledge of the accountant until the reconciliation date, who is the company or the person who deposited the amount into the company's accounts.

2-Payments that were deducted from the company’s account, for example at the end of February, and the bank did not deduct it on February, but deducted it on March, this is the case in companies that do not use the notes payable account before deducting from the bank, and this is why the notes payable account is very important when preparing bank reconciliations.

3- Deposits in the general ledger and not showing in the general ledger, for example, a Cheque clearing was received from a customer and deposited at the end of July and recorded to the company's account, but the check was actually collected on August.

4- Withdrawals from the bank and not showing in the general ledger, for example, a check that was deducted in the bank’s books at the end of May, the accountant in the company deducted it on June, for example.

And there is an important point that some pending for any month is reconciled over the next month and it is the point that the bank accountant must take into account when preparing bank reconciliations.

And Bank Reconciliation Form is as follows

Balance as per Bank Statement                                      ******** 

(+) Unpresented Cheques                                                ********  

(+) Unrecorded Withdrawals                                           ********

(-) Deposit in Transit                                                       ********

(-) Dishonored Cheque by Bank                                          ********

= Balance as per Bank Statements                                    ********    

Bank Reconciliation Report in Practical Reality

In practical reality, the bank accounts must be matching on a daily basis so that the bank accountant submits his report today to the financial manager and the report is financially correct in the sense of the actual balance today, for example 500,000, but there are accounts payable checks within two days with a value of 150,000 for example, the available balance is 350000 and there is an example a check matures after a week with a value of 50,000 and so Bank Current Account Activity Report must be detailed

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In other words, the current actual balance and the available balance after deducting the outstanding checks during a period of time soon and also if there are opening letters of credit and letter of credit commissions will be deducted from the current account and also taking into account the checks that will be collected during a period of time soon and the report is prepared using the accounting software or using Excel and also Loans and Facilities Reports for each bank separately so that the actual balance of each loan account or facility is shown and the available balance to the company that can be used and in the case of a free balance it is explained in the report, in the sense that if the credit limit for the facility loans of the company in National Bank of Egypt is 10 million Egyptian pounds and the company borrowed 8 million to date (the actual balance of loan indebtedness), so there is an available balance for the company that you can use which is 2 million, but it is possible that the company opened letters of credit of the bank at a value of 750 Egyptian pounds, so the bank when the letter of credit is opened by setting aside deduction from the available balance, the available balance of the bank is 1.250 million (2 million- 750 thousand), and so the accountant must be aware of every number in the bank statement.