Ever gone to match your financial records to what’s in the bank, only to find there are a few inconsistencies that are stopping you from completing the process?
Bank reconciliation discrepancies are a common but frustrating occurrence for businesses. You can’t bury your head in the sand when it comes to maintaining accurate financial records, though – so if you are fully responsible or heavily involved in your bookkeeping activities, it’s a good idea to get your head around what might have gone wrong, and how you can correct any issues.
Here are some of the discrepancies you’re most likely to find in your bank reconciliations, and some tips on how to fix them.
Outstanding cheques
These are cheques issued by the business that have not yet been presented for payment, creating a ‘gap’ between the bank and book balances.
Record these outstanding cheques in the reconciliation process and adjust the book balance accordingly. If cheques remain unpresented for an extended period, you’ll need to follow up with the payees and chase payment, or perhaps consider voiding and reissuing them, if you need to.
Deposits in transit
These are deposits made but not yet processed by the bank, which can cause a timing difference. This often occurs when deposits are made near the end of the month.
You can account for these in-transit deposits in your reconciliation by adjusting the bank balance. They should appear on the next bank statement, and then all will be well.
Bank fees and charges
Banks often deduct charges, such as monthly service fees, overdraft fees, or foreign transaction fees, which may not appear in your accounts until you reach reconciliation.
Make sure you review your bank statement for any unrecorded fees and add these to your accounting system. Recording these promptly will help align both bank and book balances.
Interest earned
Again, interest accrued on your business accounts might sometimes not be recorded until the reconciliation process. So, you’ll need to add the interest income to your books to match the bank’s figures.
Data entry errors
It’s easy to make a mistake! Whether it’s a typing error, you’ve entered the wrong amounts, or you’ve duplicated an entry, there are plenty of ways to throw your books off without realising what you’ve done.
You’ll need to carefully review each transaction to identify any discrepancies. Take the time to double-check the entries against your receipts and bank statements and correct any mistakes as you go.
Unrecorded transactions
Some transactions, like direct debits or standing orders, may not be recorded in the business’s accounts until reconciliation.
If this happens, you will need to compare each bank transaction with the records in your books, one by one. Record any missing transactions and adjust the book balance to align with the bank statement.
Duplicate transactions
Duplicate entries can occur if transactions are accidentally recorded twice. This isn’t ideal, as it will inflate the book balance. Simply find and delete or adjust any duplicate transactions to bring everything back into balance.
Uncleared or returned Cheques
You probably don’t run many cheques through your business – but if you do see them from time to time, you might occasionally find that a deposit will be returned due to insufficient funds in the payer’s account or another issue.
In this case, you will need to remove or adjust the returned cheque amount from the deposits and update the accounts receivable as needed.
Timing differences in transfers
Internal transfers between accounts may cause discrepancies if timing differs, especially if both accounts aren’t reconciled at the same time.
Make a note of inter-account transfers and ensure that both accounts reflect the same transfer date. Feel free to adjust the data if there’s a timing difference between the two.
How can you minimise discrepancies?
It would be great if all you had to do was click a button at the end of the month, right? Well, follow the advice below, and you could reconcile your accounting records with the bank in a matter of minutes, not hours!
- Carry out bank reconciliations monthly to identify and resolve discrepancies early on.
- Use accounting software with integrated bank feeds – like Xero or QuickBooks – to simplify the process and reduce manual entry errors
- Keep hold of all receipts, bank statements, and relevant documents (and make sure they are well organised) so you can quickly verify your transactions
- Where possible, separate duties related to handling cash, recording transactions, and performing reconciliations to reduce the chance of errors or omissions
