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Bank Reconciliations | Edmonton Bookkeeping


Hi, welcome to another edition of ask burl CPA. Today we’re talking about bank reconciliations. I’m a here with me. [inaudible] thanks for joining us again. Sold me. You enjoying the fact that we’re, we’re not driving to work in darkness anymore.

No. Yeah, I’m just happy note with early we’re get to work and it’s, it’s more like brain opening than anything.

Excellent. Excellent. So the, the quote that I have today concerning bank reconciliations, Albert Einstein quote, it says, if you can’t explain it simply, you don’t understand it. Uh, the statistic that we have and you know, 50% of all businesses go out of business in five years and, and you don’t, one of the big three reasons for that is you run out of cash. Uh, you know, the story that we have is, you know, business owners, they’re trying to make key decisions, but they have significant errors in those cash balances. Um, so, you know, may, what are the questions that you think that these business owners need to,

yeah. Asking, well, what is the difference between registered balance and statement balance?

So when you have a bank reconciliation, it starts with the state balance and that Steve and bounce up top should be the exact same balance that’s on your bank statement at the same day. So if you’re looking at the last day of February, uh, on your bank, saving the last day of February on the state of balance on the bank, reconciliation should be the same number. And then in between it you’re going to have uncleared items and then at the bottom you’re going to have the register bounce. So these uncleared items are, you know, checks it have written that haven’t cleared the bank yet, the posits that have come in but you know, aren’t, aren’t showing it on the bank statement. And then we have that registered balance, which is basically the balance after all the smoke clears, this is the balance that we’re going to expect in that register balances the same balance as showing on your balance sheet, on your General Ledger. Um, men, it’s the same, you know, cash balances. At Spurrell, we can handle your Edmonton Bookkeeping. You used to ultimately, uh, that goes into the determination of your profit and loss statement too, because the, those entries are included on that.

And so what is the purpose of a bank rec constraint?

So the, the purpose is to really go through those uncleared transactions. So, so the first, make sure that that statement is going to match. So, you know, we have a starting point that the bank statement and our state and the balance in the bank reconciliation, they both match side by side, but then we look at those uncleared transactions. So we see which transactions have cleared. You know, my interview might’ve written a bunch of checks and some of them cleared, some of them not clear which ones have not cleared. So the ones that are still outstanding waiting to be clear, um, which, you know, deposits that have been booked, they appear reasonable. Uh, they’re going to come in and it really just tells you at the end of the day, this is what cash is available to the business. So, uh, rather than the statement balance, we could have a statement balance for $100,000. We wrote a check yesterday for 50, well there’s only $50,000 available. So it’s really sure what is the actual available cash

business and why is checking the statement balance first a good idea. So

you really, you want to check that statement balance first and, and, and lock it in and against the, the statement balance on the bank reconciliation because that makes sure we have a, a good starting point. Do you know everything else? You can look at the uncleared transactions but we could be out trait. So you really want to look at that statement balance first. And that’s kind of what happens. The first step in and bank reconciliation is all the transactions are already booked in the accounting data file. Now we’re just matching the accounting transactions that are booked in the accounting data file and seeing which ones have actually cleared the statement. So we get down to that statement balance and then we can start drilling into those uncleared transactions. And are they legitimate uncleared items or are they, you know, possible errors in the band, the bookkeeping as well. Then it has to be addressed before we take that registered balance as the actual cash available.

So if a register balanced doesn’t match the ledger is a feature item mark clear?

Yeah, usually that, uh, if the, if the statement balance is incorrect, you know, now there’s just a, there’s an error, there’s probably human error in, in, in matching which items and clear which items having clear. But when the register balance at the bottom, does it match the General Ledger? So the register bounce from your bank reconciliation doesn’t match the ledger. Normally what happens is there’s a transaction posted for a future date after that bank reconciliation that has been marked cleared. So example, you’re reconciling February and we booked a, you know, on March 5th transaction as being cleared and we’re doing a February 28th reconciliation. So usually if, if, if ever, if you know what salt, if you see the statement balance not matching the statement from the bank, um, that’s it. Don’t hessitate with your Edmonton Bookkeeping.  It’s usually human error. You’ve got to go transaction, which is action. See what’s ones are, are, are there, which ones are. But if you see the register balance on the bank reconciliation and that’s not matching the balance on the general ledger or the balance sheet, then usually there’s a future transaction that’s marked as cleared before the date of the actual transition.

And what are the uncleared charges? [inaudible] comprised of soul,

the, the uncleared charges normally the checks. So normally in the assays checks that are, uh, have been written from the corporate account and they have not yet cleared. So you know, those funds are spoken for. The funds have been just burst or in the mail and on some of the other bank has already cashed them. What did they even, you know, if they’ve cashed immediately, it takes a couple of days for posting in your bank accounts. So they’re there primarily checks. Um, I suppose you could have a payment, but it’s going to be here a quick, it’s primarily the, the outstanding charges that, how many, I clear the statement of primarily. And why can’t checks be outstanding for more than six months, technically stale, dated. So technically, even if you’ve written a check in, if you wrote it for a legitimate reason and the other person hasn’t cached it, um, you know, that check is now still.

They did the bank shouldn’t cash. It is no longer a legitimate document. So you know, when you’re looking through a bank reconciliation, you’d see a check that’s a year old or two years old, three years old. It’s always wrong. It always needs to be corrected at that point because, uh, if it, uh, of course it was a mistake, it needs to get corrected. But even if it was a legitimate check for a legitimate purpose, it’s no longer oh standing because it’s, that check is no stale data is no longer legitimate document. Electronic Payments Show as uncleared transactions. Yeah. So you have this electronic payment that, you know, electronic payments by, by their very nature, they’re just first, immediately. It’s not like you process an electronic payment and bill payment or an etransfer and it takes a while for it to show up in your account.

It either shows up in the account and it needs to be, um, it needs to be booked as a cleared item or it never happened on that date. So either the date’s wrong, you know, you haven’t booked for February 25th and it actually happens March 5th and we have to correct that day, or this transfer never happened or to duplicate of another of another item that already happens. So when you’re seeing outstanding charges and they’re comprised of electronic fund transfer, so bill payments or, or an email money transfers or some sort of, you know, direct debit or you know, stuff that uh, that, uh, you know, may appear plausible. It’s not, as soon as you see an electron in a EFT and it says, no, this is the transaction is even two, three, four days old and you’re looking at a bank reconciliation and this is one of the uncleared items.

It’s not, it’s probably not an unfair dynamo. It’s probably a mistake. And how long does it take for most outstanding deposit to clean? Yeah. So that’s the other thing to deposits. We talked about checks and you know, they can be outstanding for six months. Having Edmonton Bookkeeping is important and should be a priority. Um, and that can happen. It’s rare. I mean most people would get a check and they cash it and that’s, that’s how it was going to go. But the, the lifecycle is still longer, especially if you mail it’s, and by the time they get it sits on a desk and then they put it in the bank and by the time the bank actually posted transaction, um, but in terms of a deposit, you get a deposit in. Um, you know, again, if it’s an electronic deposit, it should be immediate and by its very nature it happened the same day. So you should never have an electronic deposit as outstanding because you know, by its very nature it happened electronically.

Um, but you know, let’s talk about, you know, some of the deposits that are sending a little longer. If you’re using a credit card or debit card machine, you know that someone rings in their credit card information, they punch it in on the machine, um, or it’s, you know, some sort of monthly recurring billing. Those deposits, they’re going to hit the bank, you know, same day, one day, two days, maybe three days later. Um, no, maybe there’s a long weekend in there and it could go four or five. But you know, it’s, it’s of the same thing as, as the electronic funds going, uh, you know, going out with those deposits, we shouldn’t see uncleared deposits of any electronic means that are outstanding for more than a few days. Um, again, if you see that on clear transaction that’s outstanding for more than a few days and we have a mistake. So, and it’s one of the most common things is you get this bank reconciliation.

People are, you know, they’re always saying, I got, I got the bank reconciliation bank reconciliation is done, statement ballot matches and they have these uncleared transactions and they’ve had the same and third transactions going for years. And the file, sometimes it’s, you know, not just months, sometimes it’s same uncleared transactions been there for a year or two. And that’s affecting your cash balance on your balance sheet. And some where there is likely mistake on the income statement that feels with the two. Um, so again, if you have these outstanding deposits and they haven’t cleared, you can’t have a check, I guess you can never check. It gets mailed to you, sits on someone’s desk for a week and then it gets deposited. I mean that’s another issue. Why aren’t you making those deposits daily anyways? But you know, we see outstanding deposits and they’re more than a few days old. You should be skeptical that that register balance on your bank reconciliation and, and in turn your balance on your, your cash balance on your balance sheet. It’s probably wrong

if you have a fictitious uncleared deposit. It’s revenue normally overstated.

Yeah. Normally that’s what’s going to go on. I’m achy. It could be booked to something else, but in the majority of the cases that’s what’s going to happen is, is you have a deposit, um, often what the transaction is if someone booked it, uh, and accounts receivable, so they booked an invoice, um, when they, when they earn that revenue in there waiting for payment on that. And then when the, when the payment actually comes in, it’s booked a second time as another revenue transaction. So it’s, it’s, it’s likely in there twice. That exact deposit amount is usually part of another invoice that normally that’s, that’s what’s happened in the, in the, in the accounting side.

If you have a fictitious unclear check, our expenses normally overstated then

yeah, that, that, that can happen to you. So either you’ve got a book twice and that’s why it’s showing up as a, um, an outstanding check that’s never cleared. Or, um, a lot of times it’s, you know, something, something can happen. Even you could mail them out a check and they never get it. So they mail you another invoice and you book this, the second invoice again as a, as a bill in the accounting software, and then you pay it again and the first check never cleared it.

Probably in there twice again. So are the rules the same for related party or shareholder? A mouth?

Uh, yeah, they, they are. And usually you’re going through bank reconciliations. That’s one of the call and things that you’re going to find in the uncleared transactions. It’s some sort of shareholder amount, um, or some sort of did party amount and people just, I don’t know, they can just turn off the rain and just say, oh, the bank reconciliation. Yeah, I understand my, my statement balance and then I have these uncleared this will include check. That makes sense. Um, it’s, you know, it’s, it’s going to clear in two or three days, no problem. And then I got this amount due to the shareholder. The related party has been there for six months. Oh. But it’s a share of the related party. It doesn’t matter. It does matter. Your cash balances wrong. We can help you with your finances with our Edmonton Bookkeeping. Um, we, we got to fix that. Right. Um, so those little shareholder amounts, it’s the same thing.

If it’s a, it should clear in a few days check, you know, it shouldn’t, it shouldn’t take too long either, especially if it’s related party or a shareholder, you know, exactly if it cleared or not. Did you hit your personal account? Did it hit the account of the, uh, other related party that you should have access to? This is something that can be resolved. It shouldn’t be put off. How often do clients have a fictitious and cleared items and what should they do? I would like to say it’s not often, and that’s what I would like to say, but in all likelihood will may get bookkeeping files that come in. I would say more than 50% of the time they have unclear deposits or unclear charges that don’t make any sense. They’re old, they’ve been there for months, if not years. Don’t let surprises get the best of you. Call us and take advantage of our Edmonton Bookkeeping services. Um, and you know, they have to be, they have to be addressed.

Right. And, and if, if you don’t know how to address it, you need to hire someone who does know how to address it. And I just say, if someone gives you a long and convoluted answer, why we have these uncleared transactions is, you know, if you can’t explain it simply you don’t understand it. You lots of times it’s a, it’s a mistake. It’s usually recorded twice or you know, it’s an expense or revenue that will never was actually earned. And it’s, it’s, uh, you know, sitting there, uh, effecting your cash balance on your balance sheet and it’s probably affecting your income statement as well. So that’s what we have, uh, for today on, on bank reconciliations. Thanks so much for joining us. As always, you don’t hit the lichens subscribe button, so we can keep bringing you tips on how to beat the odds at business. Uh, and if you have any questions, leave them in the comments below. We’ll try to address them in future videos. Thanks very much.