Example of Bank Reconciliation: Definition, Problems, and Discussion

Bank Reconciliation – In the world of accounting there is also a term called bank reconciliation. This bank reconciliation can be interpreted as a process of matching financial data within the company and financial data contained in the bank.

As is well known, there are many cases of financial reports that present inaccurate data or do not match the financial data contained in the company and also in the bank. Therefore, this bank reconciliation has a very important role, especially for officers or staff in companies who have positions in charge of finance.

There are several factors that lead to the emergence of this bank reconciliation, one of which is the existence of differences in financial records or reports. Even so, this is actually fine for a company or organization, however, to prevent other bad risks from occurring, the company still has to carry out a bank reconciliation. Therefore, this bank reconciliation process should be done at least once a month or once a week.

What Is Meant By Bank Reconciliation?

Bank reconciliation is a series of records of financial information that describes cash differences between the company and the bank. The difference can be seen from the bank’s records with the customer’s cash records.

Sometimes, discrepancies in the financial information records arise when the customer making the transaction has not been recorded by the bank, in this case the customer’s bank records are considered to be correct. Conversely, if there are differences from the records of other posts, then the notes from the bank and also the company need to make adjustments.

Generally, the bank will periodically send statements in the form of checking account statements in which there are various records of transaction information. The transaction information becomes proof of transactions by customers or companies within a certain period. With evidence of transactions between the bank and the customer, the company can find out any mistakes or errors that have occurred between the two parties.

In making a good financial report, you can learn it through the book Understanding Financial Reports which explains how to prepare the three main forms of financial reports, introduces ratios, and much more.

Why is Bank Reconciliation Necessary?

To ensure that there are similarities in information records between companies and banks, it is necessary to carry out a bank reconciliation process. By carrying out a bank reconciliation, the bank and company report records for a certain period can look neater and more accurate.

Bank reconciliation is also the center of control or control in every receipt or payment of a company. Whether it’s payment in cash or in non-cash form.

In addition, the purpose of holding this bank reconciliation is to check the accuracy of every record contained in the company’s cash account and bank records. Thus both parties can know the nominal receipts or expenditures that occur. Conversely, companies can find out financial information that they have not had time to record through financial data from the bank.

To better understand how the process between companies and banks occurs in the financial process, the book Banks and Other Financial Institutions is here to help Sinaumed’s .

When Should You Do a Bank Reconciliation?

It is undeniable that every company will save their funds in a bank. Banks are considered a safer place than using other storage methods. In addition to guaranteed security issues, financial records from the bank can also be evidence of every type of transaction made by a customer or company.

In general, a company will at least carry out this bank reconciliation process once at the end of each month. This bank reconciliation will be carried out after the bank concerned sends the company’s bank statement containing the initial cash balance, various types of transactions for one month and the final cash balance at the bank.

However, to prevent the worst risk from occurring to the company, it would be better if the bank reconciliation process is carried out every day. Companies can access their financial information through the available bank websites.

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In this way, the company can solve problems that occur as soon as possible. For example, if the company finds little activity at the bank and there are strange things in the verification process, then the company should be suspicious of this activity.

Of course this kind of transaction is very unlikely to happen, how can the final balance of a company and a bank be the same. In each transaction period, there must be payments, deposits, penalties, bank service fees and other types of transactions that have not been recorded with the company.

If the company finds something suspicious like this, it would be better to close the account and save some of the funds in a more active account. Thus, it will be easier for the company to invest some of the remaining funds and monitor the investment status.

In preparing good company financial reports, such as income statements, changes in equity, cash flow, and much more, Sinaumed’s can read the book Easy Ways to Prepare Financial Statements for Service Companies by Rahmat Hidayat Lubis.

Components in Bank Reconciliation

There are several components that will appear when a company carries out a bank reconciliation process, for more details, please listen to the following information.

  • Deposit in transit or deposit in progress. What is meant is when cash or checks that have been received and recorded by the company have not been recorded by the bank appointed by the company. If something like this happens, the deposit will not appear on the bank’s financial statements. Therefore, this case is included in the reconciliation item in bank reconciliation. Basically, a deposit in this process occurs when the intended data is late to the bank concerned. So, the data cannot be entered into the record on that day. Deposit in transit also applies if the company sends funds but has a pending status from the bank.
  • Outstanding checks or outstanding checks. What is meant is when a check has been recorded by a company but has not been cashed. If the disbursement process has not been completed, the data will not appear in the bank’s financial statements.
  • Non-sufficient fund check or blank check. The point is that the check is not accepted by the bank because the funds in the company’s account are insufficient. If this case occurs, the bank concerned will still issue a debit note with dishonesty or dishonor. Then, the balance in the company account will also be reduced. If the company wants to process this check, the company must pay a processing fee or funds.

Forms of Bank Reconciliation

1 Form of Vertical Bank Reconciliation (Report Form)

The bottom of the column contains information about cash balance reconciliation records based on bank statements or vice versa. The following is an example of a vertical bank reconciliation form or report form.

 

2. Control Bank Reconciliation Form (Account Form)

The next form is a bank control reconciliation form or account form. Unlike the first form, this account form is arranged horizontally in a side-by-side manner. The column on the left contains data on the company’s record balance, while the column on the right contains data for reconciliation of cash balances on checking accounts and vice versa. The following is an example of a bank control reconciliation form or account form.

3. Form of Bank Reconciliation 4 Column

Basically, this 4 column bank reconciliation form consists of 5 columns. However, out of these five columns there are only 4 columns for nominal mutations, therefore it is called the 4 column bank reconciliation form.

The definition of the 4-column reconciliation form itself is a form of compiling a bank reconciliation with a total of 4 nominal mutation columns. The following is an example of a 4-column bank reconciliation form.

4. Form of Bank Reconciliation 8 Columns

The last form of bank reconciliation is the 8 column bank reconciliation form. As the name implies, this form of presentation of bank reconciliation data and information consists of 8 columns. Even though the total number of columns is 9 columns, there are only 8 columns of nominal mutations in this form of reconciliation. For more details, please see the following example of an 8-column bank reconciliation form.

Causes of Bank Reconciliation

1. Notes Receivable

Notes receivable can be interpreted as a client’s debt that uses a binding agreement and guarantees in the form of assets if problems occur at any time. In general, notes receivable can be a factor in bank reconciliation because funds are sent through bank services. These notes receivable also usually have an agreement period of less than one year.

2. Deposits In Transit

Bank reconciliation can also occur due to differences in company and bank cash records due to the influence of deposits in transit. Deposits in transit are also often referred to as deposits in transit. In general, this deposit in transit occurs when there is a fund deposit at the end of the month that has been recorded by the company for that month. However, the new bank can record these funds in the following month.

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3. Bank Expenses and Income

Bank reconciliation can also be caused by bank charges. The bank expenses in question can be in the form of administrative expenses, service fees or check writing fees and other bank charges. Bank interest income that has not been fully recorded by the company is also included in bank expenses.

4. Outstanding Checks

Outstanding checks are checks that are still outstanding and can cause a bank reconciliation to occur. In short, this outstanding check has been recorded by the company, however, it has not been fully recorded by the bank. In other cases, it could also be that the check has not yet been cashed by the bank to the recipient of the check.

5. Recording Error

The next factor causing bank reconciliation is the occurrence of recording errors. This error can be caused by the bank or the company itself. For example, the person in charge of the company who takes care of the company’s financial statements makes a mistake in recording the nominal amount of money or vice versa, a bank employee who acts as the person in charge of managing the company’s money also makes a mistake in recording.

6. Bank Credit

Bank reconciliation can also occur due to the existence of bank credit. The bank credit in question can be in the form of billing or deposits from the bank. This type of transaction can only be known if the customer receives a checking account.

Therefore, it is very important to understand bank credit, especially in Indonesian banking. Sinaumed’s can learn about it in the book Smart Banking Series: Commercial Bank Credit According to Indonesian Banking Theory and Practice .

7. Not Sufficient Funds

Not sufficient fund is a blank check that has no funds. This occurs when the company receives a check for payment from a customer. However, after checking, the check could not be cashed due to insufficient or insufficient funds. Cases like this can lead to bank reconciliation because the bank concerned is unable to withdraw the money. Funds that are lacking in the account are usually not realized by the company concerned, so they are still recorded as check disbursement data.

 

7. Examples of Bank Reconciliation Questions and Their Discussion

After knowing the explanation about bank reconciliation, then we will provide examples of bank reconciliation and its discussion. For more details, please refer to the following discussion.

Agus has a bank account balance in the general ledger of PT. Martech on November 30 2018. Agus’ total balance is Rp. 185. 500. The balance according to the checking account at that time showed a total amount of Rp. 207,000. However, after an examination, it turns out that there are differences in the data. This difference is caused by several factors, including:

  • There is a bank administration fee in November 2018 of Rp. 2,800 which appears in the bank statement and has not been recorded by the company because the debit note has not arrived.
  • There are five checks with a total of Rp. 40,750 that has been paid to suppliers or suppliers to pay off debts that have not been cashed.
  • There is a check drawn by the company PT. Ayu, which amounted to Rp. 15,000 but it turned out that the bank had incorrectly recorded it in PT. Martech.
  • There are remittances from customers via bank transfers amounting to Rp. 3,950 in order to pay off debts but have not been recorded in the company’s books.
  • There is a check with the number SR 5220 with an amount of Rp. 70,550 and recorded in the books of PT. Martech with the amount of Rp. 65,150

Then, you are asked to make a bank reconciliation for PT. Martech as of November 30 2018 and also make the necessary adjusting entries.

Learn a variety of other basic and advanced accounting problems in the INTRODUCTORY ACCOUNTING book: Question and Solution Bank, which contains questions and solutions that are easy for Sinaumed’s to learn.

8. Factors Commonly Causing Differences in Bank and Company Records

1. Which Adds to the Cash Balance based on Company Records

Some of the things included in this case include collection of notes receivable, interest income on notes, demand deposits or interest income, there are errors in recording receipts that are too small or vice versa, there are recording expenses that are too large.

2. Reduced Cash Balance Based on Company Records

Some of the things included in this case include bank administration fees, collection fees, checks rejected by the bank or blank checks, errors in recording receipts that are too large or errors in recording expenses that are too small.

3. Which Adds to the Cash Balance based on the Bank Statement

Some of the things included in this case include funds that have not been deposited, deposits are still in transit, errors in recording receipts that are too small, or errors in spending that are too large.

4. Reducing the Cash Balance based on the Bank Statement

Some of the things included in this case include outstanding checks, errors in recording receipts that are too large or errors in recording expenses that are too small.

Accounting Related Books

Accounting Materials Related to Bank Reconciliation