Business Office 201 IASSBO Seminar November 7, 2013 BANK RECONCILIATION

Transcription

1 Business Office 201 IASSBO Seminar November 7, 2013 BANK RECONCILIATION 1

2 WHY RECONCILE? Planning and controlling of cash. Safeguard cash: Internal audits should be in place Same person reconciling the accounts should not be the same person who writes checks/makes deposits Always have the supervisor of the person doing the reconcilement review and sign it For example, in a small unit this might be the Superintendent In a larger unit, the CFO or Business Manager 2

3 INTERNAL CONTROLS When internal jobs cannot be segregated: Have internal controls set up to verify accuracy of reconciliation. Board Financials prepared by someone other than the reconciler. Accountability to someone that reconciliation has been completed. 3

4 RECONCILIATION DEFINED A bank reconciliation is the process whereby the balance in the bank s records and the balance in the depositor s records are brought into agreement. You will compare your journal (ledger) entries to the bank statement and reconcile any discrepancies. 4

5 Bank Statement ITEMS TO GATHER Canceled Checks (both check number and amount) Deposit Slips Calculator & Pencil Many banks no longer provide canceled checks or deposit slips, you will just use the bank statement Software program 5

6 BEGINNING STEPS Compare cleared checks (from bank side) with outstanding checks appearing on last month s report and with newly recorded checks (from book side). Clear all paid checks (on book side) for period and verify total cleared matches with total cleared from bank. Deduct checks outstanding that have not been paid by the bank from the balance (from bank side) according to the bank statement. 6

7 Balance According to Bank $ 7,892, Less: Outstanding Checks $ 2, Adjusted Bank Balance $ 7,890,

8 BEGINNING STEPS CONTINUED Compare each deposit listed on the bank statement (bank side) with unrecorded deposits appearing on last month s reconciliation and with deposit receipts (book side). Add deposits not recorded by the bank (deposits-in-transit) to the balance according to the bank statement (bank side). 8

9 Balance According to Bank $ 7,892, Less: Outstanding Checks $ 2, Adjusted Bank Balance $ 7,890, Add: Outstanding Deposits $ 74, Adjusted Bank Balance $ 7,964,

10 BEGINNING STEPS CONTINUED Compare bank debit memorandums (bank side) to entries recording cash payments (book side). ACH-Automated Clearing House. Deduct debit memorandums that have not been recorded from the balance according to the depositor s records (book side). This will be an adjusting entry in your journal. Make sure to reference what the debit memorandum was for (i.e.-bank fees for the month of April 2010). 10

11 Balance According to School Corporation $ 7,963, Less: Bank Debit Memorandums $ Adjusted School Corporation Balance $ 7,962,

12 BEGINNING STEPS CONTINUED Compare bank credit memorandums (bank side) to entries in the journal (book side). EFT-Electronic Funds Transfer. Add credit memorandums that have not been recorded to the balance according to the depositor s records (book side). This will be an adjusting entry in your journal. Make sure to reference what the memorandum was for (i.e.-deposit #2354 in credit error of $63.25). 12

13 Balance According to School Corporation $ 7,963, Less: Bank Debit Memorandums $ Adjusted School Corporation Balance $ 7,962, Add: Bank Credit memorandums $ 1, Adjusted School Corporation Balance $ 7,964,

14 ADJUSTMENT HINTS: If an item appears on the bank statement but not on the School Corporation's books, the item is probably going to be an adjustment to the Cash Balance on the School Corporation's books. A journal entry must be prepared (book side). If an item is already in the School Corporation's Cash Account, but has not yet appeared on the bank statement, the item is probably an adjustment to the balance per the bank statement (bank side). 14

15 WHERE TO ADJUST? Outstanding Checks Bank Service Charge Interest Credited to Bank Account Interest Charged to Bank Account Deposit in Transit Add to BOOK Balance Deduct From BOOK Balance Add to BANK Balance Deduct From BANK Balance Fee charged by bank for returned check (NSF) 15

16 JOURNAL ENTRIES? Which of the following will require a journal entry to the School Corporation s books? Bank Service Charge Deposits-in-Transit Bank Error 16

17 JOURNAL ENTRIES? Which of the following will NOT require a journal entry to the School Corporation s books? Check Printing Charge Outstanding Checks Fee for NSF Check 17

18 Balanced Balance According to Bank $ 7,892, Less: Outstanding Checks $ 2, Adjusted Bank Balance $ 7,890, Add: Outstanding Deposits $ 74, Adjusted Bank Balance $ 7,964, Balance According to School Corporation $ 7,963, Less: Bank Debit Memorandums $ Adjusted School Corporation Balance $ 7,962, Add: Bank Credit memorandums $ 1, Adjusted School 18 Corporation Balance $ 7,964,486.58

19 OUT OF BALANCE SOLUTIONS What if your ending balances do not match? Common Mistakes: Beginning Balance (bank/book) is Incorrect Outstanding Checks Deposits in Transit Deposit Total Incorrect Service Charges Non-Sufficient Funds Checks (NSF) Errors 19

20 OUT OF BALANCE SOLUTIONS Figure the amount of the difference (subtract Book balance from Bank balance). Adjusted Bank Balance $ 7,964, Adjusted School Corporation Balance $ 7,964, $7,964, $7,964, = $

21 EXACT AMOUNT SOLUTION Difference is exact amount of April s bank fees. Double check that entry was omitted or not put onto a May date. If truly omitted, record your journal entry as shown earlier. 21

22 OUT OF BALANCE SOLUTIONS Adjusted Bank Balance $ 7,964, Adjusted School Corporation Balance $ 7,964, ,964, $7,964, = $18.00 $18 is not an exact amount for any transaction. 22

23 THE 9 SOLUTION Is the difference evenly divisible by 9? Transposition of a number is most likely your problem. Difference = $18.00 $18 divided by 9 = 2 Transposed $ to $ Short cut example: Off by $ =18 18 divided by 9 = 2 23

24 JOURNAL ENTRY A correcting journal entry should always be done-do not just correct original error. Provides audit trail of what happened. Never know when you might need to provide information months/years later. Protects you from being accused of deleting transactions/fraud. Remember others might have print outs already in hand with original error in place. 24

25 JOURNAL ENTRY A journal entry will need to be completed for a credit of $18 or a debit of -$18. To record a transposition of numbers for bank fees ($ vs. $ recorded earlier). -$

26 OUT OF BALANCE SOLUTIONS Adjusted Bank Balance $ 7,964, Adjusted School Corporation Balance $ 7,964, $7,964, $7964, = $ $300 is not an exact amount of a transaction = 3 and is not divisible by 9 26

27 THE 3 SOLUTION Is the difference $3, $30, $300, etc? The 10 digit key error is most likely your problem. 27

28 3 SOLUTION CONTINUED Entered $ instead of $ (difference of $300) Key above the 2 is a 5 Difference between each key above/below is 3 28

29 JOURNAL ENTRY A journal entry will need to be completed for a credit of $300 or a debit of -$300. To record a ten-digit key error for bank fees ($ vs. $ recorded earlier). -$

30 OUT OF BALANCE SOLUTIONS Adjusted Bank Balance $ 7,964, Adjusted School Corporation Balance $ 7,965, $7,964, $7965, = $ Our Exact, 9 & 3 Solutions do not work 30

31 OUT OF BALANCE SOLUTIONS Reversal of Journal Entry Divide difference by 2 $ divided by 2 = $ Our bank debit memorandum was entered as a credit 31

32 JOURNAL ENTRY A double journal entry will need to be completed for a credit of -$ and a debit of $ To record & correct a reversed journal entry for bank fees ($ recorded as credit instead of debit). -$ To record April s Bank Fees $

33 OUT OF BALANCE SOLUTIONS Summary of Debits & Credits or Proof of Cash Run a report (book side) for total debits & credits for the month. Compare to the total debits & credits on the bank statement. This will help decipher which side the error is on. 33

34 SUMMARY SOLUTION Begin with bank summary credit amount: Subtract deposits-in-transit from previous month Add deposits-in-transit from this month Subtract deposit adjustments not included on book side If total = 0, issue is on debit side. If total = amount you are off, total issue is on credit side. If total = any amount different, then your issue could be on both sides. 34

35 SUMMARY SOLUTION Move to bank debit summary Add all book decreases (checks, bank charges, etc ) Subtract last months outstanding checks Add this months outstanding checks Add/Subtract bank deductions not included on book side debits If total = 0, issue is on credit side If total = amount you are off, total issue is on debit side If total = any amount different, add this total with credit amount that is off 35

36 OUT OF BALANCE HINTS Double check that your beginning balance = last month s ending balance (both bank and book sides). Verify outstanding checks have all been cleared. Stop, put it away, come back to it tomorrow! Many times your error will be found quickly when you take the time to rest. 36

37 QUESTIONS? 37

38 CASH MANAGEMENT AND ISSUES Keep enough cash on hand to pay all of the bills But note that a Deposit Fee is charged by banks for an FDIC fee. So the more cash you keep on hand, the more in bank fees you will pay. Goal is to balance enough cash for cash flow with the least amount on hand to minimize fees 38

39 HOW TO MINIMIZE BANK FEES Take excess cash in the bank and put into a CD. Use a tiered structure for cash flow Vary maturity dates from 1 month to 1 year Do a Bank RFP to get market competition to see if bank fees can be lowered Talk to others and see what kind of fees other districts are paying so you can tell if your fees are high are low in comparison 39

40 MINIMIZING FEES Manage cash flow Look at fee statements for NOC charges. These are charges due to a coding error on payroll direct deposit. Some banks charge these, but don t always tell you about it it just shows up on the statement and you just need to get the correct routing or account number to fix Open up a Hoosierfund.com account for cash flow and transfer between this fund and your bank account. 40

41 REFERENCES References Cuzzetto, C. (1993). Internal auditing for school districts. Reston, Virginia: Association Of School Business Officials. Day, J. W. (2008). Theme: detecting accounting errors. Retrieved April 6, 2010, from pubs/ Article_Theme_Detecti ng_accounting_errors.pdf Drills for the topic bank reconciliation. (n.d.). AccountingCoach.com. Retrieved April 6, 2010, from online-accountingcourse/ 13Dpg01.html Eisen, P. J. (1994). Accounting a streamlined course for students & business people (3rd ed.). New York, New York: Barron s Educational Series, Inc. (Original work published 1985) Help with accounting: finding errors. (n.d.). Retrieved April 6, 2010, from essortment website: all/ accountingtechn_rtgh.htm 41