Bank reconciliation is important for any type of financial situation. This can be from a personal stand point or from a business stand point. It is important to always keep everything accurate and equal so there are no problems down the road. If your bank is not reconciled it can lead to financial downfall and crises later on. Many people think that bank reconciliation is just making sure your bank account is accurate. This is not the only thing that is involved. The process of bank reconciliation is an extended process that includes many different aspects.
First let me explain the definition of a bank reconciliation. The dictionary explains that a bank reconciliation is the complete balance of what the amount is that the bank holds on their files and in their system against what a consumer has recorded and generated in their ledger or template. These two numbers should match. Your records should show the same amount, down to the penny. As a company offering payroll services in Cambridge, we want to emphasize that there are certain circumstances when this is not the case. Here are a few of the many reasons:
The first reason could be from a cheque. If your bank statements give you a higher amount then you have in your ledger, this could be the result of a cheque you wrote. Don’t make the mistake of thinking you still have this money. When a cheque is written for a bill, it takes time for it to process. If it is mailed, then a few extra days will be needed. When a place of business receives a cheque they may hold it. This is because they have one deposit day a week. They hold all the cheque to a certain day and deposit them all at once.
You should take this into consideration. The process of the bank taking money from your account to put into the other companies bank may take a couple of days as well. So the overall time of a mailed cheque to clear through your bank is normally around a week. Cheque your bank statement to see if the cheque is even posted as removed from your account. If not, then that means it hasn’t gone through so make sure the money is available for it to get processed.
Our payroll company in Cambridge, Ontario points out another good reason that your records won’t match the bank’s records: If a debit card is used several times a business will put a hold on the amount. If it is used for things like groceries and such then it will normally clear the same day. There are two different ways to use a debit card today. Almost every debit card has a MasterCard or Visa logo on the front of it. If it does then this means that you can use it as either a debit card or credit card. If used as a debit card you will be required to enter a 4 digit pin into the system for the card to go through. When the card goes through the funds are automatically extracted from the bank account.
Using it as a credit card is totally different. The funds can take 1 to 5 days to be extracted from the bank. Some banks charge a fee to use your card as debit instead of credit as well. There are some places such as some gas stations that will put a standard hold on your card before the money is taken out. Some gas stations put a standard $75 hold on your account when used as credit. Even though you may have only purchased $20 worth of gas the other $55 will not be available to use until the transaction is complete and processed through the bank. It is recommended to use the card as debit for gas so this doesn’t happen. When the transaction is complete the other $55 is returned to your available funds.
Another reason that bank records may be different than your records is if there is a transaction not recorded by you. Almost all banks offer a free chequing account today. If you have an account however that does have a monthly maintenance fee make sure you know what date you are charge for this so that you can subtract it from your totals. There are also other fees that a bank will charge such as over draft fees if you do not have the protection that they offer.
They will also charge large insufficient funds fees if you don’t have enough money in your account to cover a transaction. These fees can range from $25 to $55 per transaction make sure this doesn’t happen. You will have to pay this fee and most likely a bounced cheque fee to the business you sent the cheque to. In the end a $25 water bill could end up costing you over $100. Routinely cheque your bank for these type of charges.
The last thing reason for non-matching records is mistakes. Make sure you write all of your transactions down at the time of using the funds so that you do not forget to subtract it later on. This is a common mistake for many people. There can also be mistakes from the bank. Some have even noted that they were charged for purchases they did not make or that their card was stolen and accessed without consent. You can file a dispute against fraudulent charges and the bank will help to rectify the situation. There are cameras at every ATM and most stores to find the culprit. Identity theft is common in the world today so be careful.
Our company recommends checking your bank online frequently. Make sure you look over your monthly statements carefully and make sure they are accurate with what you have written down in your ledger. Even a penny can throw off the rest of your bookkeeping if it is not generated correctly.