Contents:
11 - Reconciliations
There are three main reconciliations that must be performed, preferably monthly, but definitely at the year-end.
i. Bank Reconciliation
All sizes of business that use a bank account (or their accountant) must perform this. It is an essential business control.
You must reconcile the balance per your bank statement at the year-end (or month-end) date to the balance per your bank "T" account in your nominal ledger.
There are several reasons why they might not agree:
- Bank deposit before the year-end but not yet cleared (uncleared lodgements).
- Cheques paid before the year-end but not yet cleared (unpresented cheques).
- Bank deposits gone through the bank, not included in your nominal ledger (untraced bankings).
- Payments gone though the bank, not included in your nominal ledger (untraced payments).
- Bank error (must notify the bank).
- Recording error (must adjust your records).
- Wrong additions in your books (adjust).
The correct balance is the balance per your bank statements (assuming no bank errors) plus uncleared lodgements less unpresented cheques.
ii. Debtors Reconciliation
You will have 2 figures for year-end debtors:
- Balance of the Debtors Control "T" account in the nominal ledger.
- Total of the individual balances of the Debtors Ledger customer accounts.
These should agree. If not, the reason (i.e. the error(s) which caused it) must be found. Cross referencing is again very useful here, as differences are common (due to the fact that the Debtors Ledger is a memo outside the double-entry system).
iii. Creditors Reconciliation
As per Debtors reconciliation, but agreeing the balance of the Creditors Control "T" account with the total of the individual a href="/about/ourservices_bookkeeping_glossary.html#creditors">Creditors Ledger supplier accounts.
At this stage, you should look back at Section 4 in more detail, which will (hopefully) make more sense now.
The next & final section will deal with a few other, slightly more advanced areas.