EFFECTIVE BANK RECONCILIATION TIPS

Pre-reading caution :

This is not telling you how to do a bank reconciliation, but this will tell you HOW TO DO A BANK RECONCILIATION IN EFFECTIVE WAY. If reconciling checking account is always time consuming for you, this tips may helpful.

Purpose of bank reconciliation is to ensure company’s checking record is consistently reflected on the bank statement, and vice versa.

Question :
Has it finished when my Checking Account Ledger has match to the bank statement ?

Answer :
NOT YET

Next Question :
Why ? what else ?.. Oh no.. I have hundred of transaction that haven’t been posted yet


Bank reconciliation always time consuming. Because you spend most of your time in balancing work so you miss opportunity to do advance review and cross checking.

Company issues hundred of checks and wires fund to vendors, also receiving many checks and incoming wire from customers. Some checks shown on the current bank statement but they are not shown on current check register. Check issued on the check stub are not exist on the bank statement. Some strange incoming funds shown but it’s not shown on checking ledger, some small amount are shown on bank statement, but they are not shown on the checking register, some of them are shown on the credit side the rest are shown on the debit side.

WOW !... SO MANY ! SO MASSY ! CONFUSING !
Where should I start it from ?.


Start it from the most obvious part .

Get know and used with the common charges or rewards by the bank. These are some charges and income that directly deducted from your bank balance or added to your bank balance by the bank without prior notice

Adjust them all by General Journal ! :
Monthly Bank Fee [ Debit : Bank Charge - Credit : Checking Account ]
Bank Stamp [ Debit : Bank Charge – Credit : Checking Account ]
Interest Income [ Debit : Checking Account – Credit : Interest Income ]
Tax On Interest [ Debit : Tax on Interest – Credit : Checking Account ]
Make sure you catch and adjust all those “small bugs” already.
Update your General Journal

Yet, some AUTO-DEBIT PAYMENT that you set before and run by the bank automatically on common due date ( i.e.: Telephone bills due on every 7th , Electricity due on every 15th, Water bills due on every 20th, Health Insurance due on every 25th, Property insurance due on every 30th, etc ) you should have the schedule on hand already.

Post them all by manual check entry ! :
Telephone bills [ Debit : Telephone Expense – Credit : Checking Account ]
Electricity & Water [ Debit : Utilities Expense – Credit : Checking Account ]
Health Insurance [ Debit : Employee’s Benefit – Credit : Checking Account ]
Property Insurance [ Debit : Deferred Insurance – Credit : Checking Account ]
Etc…. (make sure all those auto-debit payment posted already)
Update your Manual Check Register

Now…. Ending Balance on your current Checking Ledger should change already...
Compare it with Ending Balance on Bank Statement………


HEY ! IT HAS NOT BALANCE YET !
What is next ?


Next…..
Get the check stub on your hand…..
Look at the Bank Statement……and go to the very beginning of month…
Did you find some check number shown but they are not on the check stub ?. And some incoming deposit but not shown on your current ledger ?


YES !, I FOUND THEM
But…., where are they coming from ?

Great..!
Open your previous month checking register…….. and go to very beginning of month… Yea… you should find them in there.
Look, they are marked as UN-CLEARED CHECKS and DEPOSIT IN TRANSIT.
[Leave it, and nothing you should do ! ].
They are just fine……

Okay.. before the next shout…. :-p

On your check stub…
Go to the end of month date ( the 25th – 31st )…

You should find some issued checks but they are not persist on the Bank Statement.
I assume you've figured them out already.
[ Mark them all with “UN-CLEARED CHECKS” ]

Hey… also you should find some deposits but they are not shown up on the Bank statement.
[ Mark them all with “DEPOSIT IN TRANSIT” ]

Now……… check this out ….
[Ending Balance in Your Ledger] (–) [DEPOSIT IN TRANSIT] (+) [UN-CLEARED CHECKS]

Compare to :

[ENDING BALANCE on the Bank Statement]

Have they been matched already ?.


YES ! YES, THEY’VE BEEN MATCHED ALREADY !
Has it been done already ?


Yea… but how long did it take ?. 30 minutes ? or 1.5 hours or 3 hours ?.
Take a note !

On the next bank recon, measure it by a stop watch…..
You should do this part faster and faster……

Now…set your next goal……

[NEXT GOAL]

Do it in 30 minutes
Use the rest 30 minutes to review some deposit and payment…. The amount, the journal entry, the due date, both quantity and quality aspect !
You may find some issue on it, bring the issue to a meeting with your Financial controller.

[NEXT GOAL]

Get your salary increased or a promotion !
Sure you will get it !

--------- Cheers ------

PETTY CASH MANAGEMENT

Pre-reading info : This article is best for Finance Management level guideline, and good for staff knowledge.


Petty cash fund is a small cash account purposed to cover recurring or small emergency purchases for the company.

Petty Cash Characteristic

• Usually it’s a certain small amount which is set to not exceed or lower than $200.00 to $500.00 per day. Different company may vary.
• Covering small repetitive day to day transaction.
• It’s saved in a small box or ampelove
• Handled by junior finance custodian

Petty Cash Procedure

Regardless materiality fund involved in it, petty cash play such vital role within company’s operation. Small recurring transaction happened everyday, since the opening of day till the closing day. Therefore a neat and clear procedure for petty cash fund is required. There is no reason for management to not control it properly. Inappropriate treatment on petty cash may disrupt the whole operation.

Here are some guidelines and tips for an effective petty cash management and procedure :

Petty Cash Fund Float

On the initial opening of petty cash account, management should set an absolute fund float, different company may set different level of fund float for petty cash. In term of amount determination, management should take the day to day recurring small transaction as a measurement in order to set the maximum and minimum petty cash balance.

It is not good for the company’s operation, having disruption because of insufficient small cash fund. Usually it is set in within $200.00 to $500.00 per day. In term of changing on petty cash float fund set, management should always keep custodian updated, trained, certified and designated appropriately.

Petty Cash Custodian

minimum of couple custodian may required to keep the petty cash. One custodian is always not the right number for petty cash. When a custodian leaving another custodian should replace her/him to keep the petty cash traffic running smoothly, and physical count to be written down into a paper as a transfer of responsibility.

Petty cash Custodian should has basic accounting skill, able to handle day to day small purchasing, a consistent honest person is a must, able to do a simple spreadsheet. Management should provide sufficient training prior to custodian designation, give intensive knowledge of petty cash and purchase requisition procedure, provide continuous petty cash reconciliation skill.

Petty Cash Fund Flow

Once the fund float and designated have defined, management may put the certain amount into the petty cash account. Drawn from the checking account in cash and submit it to the petty cash custodian, custodian should put a signature for the cash receipt and a declaration that they took the responsibility for safeguarding and its utilization should be made at once.

Custodian should keep the petty cash balance to be not lower than the minimum level set by the management. Whenever petty cash balance is desired to be over or less then the petty cash fund float level set, custodian should send a memo (in the case that the balance is more than the float should be) or a petty cash request (in the case that petty cash is desired to be lower than the float should be) to the financial controller for approval.

Petty Cash Disbursement

Department should submit a purchase requisition form to the Financial controller for approval. And petty cash custodian should only disbursed upon Financial Controller approval. Custodian should always generate a payment slip before money is delivered.

Petty Cash Record and Petty Cash Reconciliation

An appropriate petty cash record should be maintain consistently. While petty cash reconciliation need to be performed every closing and opening day. Petty cash physical count is performed prior to the reconciliation and custodian shift change.

Any unbalance amount occurred during the reconciliation should be tracked back and fixed before the closing. An official note for physical count and reconciliation should be made and filed upon Financial Controller approval, and petty cash allowed to be closed.

Related Topic : Cash Management, Petty Cash tips for custodian, Petty Cash reconciliation review and tips.
Related tools : Petty Cash spreadsheet, Petty Cash Reconciliation spreadsheet, Purchase requisition Form.

CORPORATE CASH MANAGEMENT TIPS

The facts of Cash

1. Cash is Heart of Business.

Every transaction needs cash. Even when a purchase is made with a credit term, it still need to be paid in cash on the due date. Purchasing, payrolling, maintenance, rental, office supplies, all those transaction need cash for payment.

2. No Business Can Run with Lack of Cash.

To enable company to finance the operation and obligation, company should maintain sufficient cash. Insufficient cash will influence most scale of company’s operation, further more it will prevent the company grow smoothly and will keep company away of the objectives.

3. Cash is The Most Liquid Among The Assets.

As a most liquid asset, huge of risk in it. Fraud most often happened in cashing area. Corruption, lapping. Appropriate cash treatment is the essence.

Issues And Tips of Cash Management

1. Cash Planning

Cash management should be addressed from the establishment of the company, right taken during the decision of capitalization. The right capital size should match to the scale of company that would be established.

Capital source is also a critical issue during the establishment. When the initiators have insufficient capital, they should plan to find a good capital outsourcers. In term with outsource capital, rate of interest and return period should be bear as main consideration. Rate of interest should be measured accurately according to the profitability prospect. As for the return period it should match to the cash turnover forecasted.

During the initial operation, cash planning should be generated. An accurate sales forecast and budgeting should be defined to enable to generate a cash planning. Cash allocation should be set to match the priority scale of operation.

2. Cash Disbursement

Cash disbursement should follow the cash allocation and priority. A fast grow company may often disrupt the priority by keep disbursing cash and away off the budget. In this case, manager should go back and stick on the cash allocation that been set.

A weekly cash flow analysis and daily budgeting is a one of the most effective tools to keep company stick on the cash planning. With this treatment company will be able to maintain cash always on the sufficient level.

3. Cash Control

Cash disbursement should be recorded appropriately. Inappropriate cash record will not reflecting the actual operation. Therefore, an accurate and valid record should be maintain consistently.

Cash record should be reviewed and reconciled periodically. This role will give a good opportunity to the management to catch and prevent some erroneous or fraud in the cashing area.

Cash management is the most critical role of financial control. Poorly cash management will prevent company to achieve the objectives and lead a business suffered.

Related Topics : Petty Cash Tips, Petty Cash Reconciliation, Checking Account Tips, Checking Account Reconciliation

Related Tools : Petty Cash Spreadsheet, Petty Cash Reconciliation Sheet, Checking Account Spreadsheet, Checking Account Reconciliation Sheet