Bank Reconciliation- A Few Common Mistakes
Preparing a bank reconciliation is a very important element of bookkeeping. Whether you are keeping your own books and records or you have employed the services of a bookkeeper, preparing a monthly bank reconciliation should be a ‘must do’ on your bookkeeping checklist.
A bank reconciliation basically allows you to reconcile your cashbook records (receipts and payments) to the business bank account statements. It is fundamentally a check to confirm you have not missed any business financial transactions in your cashbook during the period.
Outlined below are a few of the common mistakes which some people make when preparing a bank reconciliation:
- One common mistake, if you use a manual cashbook or spreadsheet, is that it does not add up properly. Indeed, it is very easy to make a mistake when adding up a column of payments or receipts with a calculator. Similarly, even if you use a spreadsheet make sure you check the addition formulas, because if one of them is wrong, the total column will be incorrect as well.
- Omissions of payments are another type of mistake, which some people make when completing a bank reconciliation. For example you may have written out a cheque but forgotten to enter it in the cashbook. Not entering all the direct debits or standing orders in the cashbook is also another common type of omission problem. To avoid these types of errors it is a good idea to tick the bank statement entries to the cashbook payment entries and also make sure at the same time you have entered all the direct debits and standing orders.
- Related to the above point, forgetting to enter certain receipts in the cashbook, for instance bank giros, is another common type of error that can occur. Again it is crucial you follow a strict monthly routine whereby you tick up the bank statements to your cashbook receipts and make any necessary adjustments.
Lastly, some entries on a bank reconciliation involve listing the amounts of any cheques which were written before the end of a particular month, but do not appear in the bank statement until after the end of the month. These are known as outstanding or o/s cheques. It is important to make sure the outstanding cheques on the bank reconciliation for the previous month all cleared. Indeed, it is perfectly possible that a cheque for the prior month, which you expected to clear, is still outstanding. If it is still outstanding it should be carried forward and entered again on your current reconciliation. Failure to carry forward these un-cleared cheques is a common mistake that many people make when completing a bank reconciliation.
