Special thanks to Kent's CPA firm in south Orlando for sending in this tidbit about bank reconciliation.
There are two records of a company's cash: its cash account in the general ledger and the bank statement. The two balances are rarely in agreement and require a competent CPA firm to help.
The bank statement: This monthly statement mailed by the bank to the business indicates what the business has in its cash account.
The general ledger: This records the day-to-day transactions of the business.
According to the south Orlando accountants, reasons for discrepancies include:
- Deposits in transit. The business has made a deposit at the end of the month that will be recorded by the bank in the following month. A common accounting problem.
- Outstanding checks. Checks have been drawn by the business and mailed but have not yet been paid by the bank and are treated as outstanding checks. Even the best CPAs can get tripped up by this. A certified check, however, is never outstanding. When a bank has agreed to certify a check, it immediately charges the depositor's account for the amount of the check prior to its mailing.
- Bank charges. These are charges recorded by the bank and charged against the customer's account for bank services, printed checks and non-sufficient funds (NSF) checks. The customer is usually not aware of these charges until after it receives the monthly bank statement.
- Collection of note. The bank may have collected a note for the depoistor that has not been recorded in the ledger.
- Errors. These CPA errors may include the depositor's incorrectly re