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 ------

TYPICAL EVENT AND CONDITION ON PETTY CASH

Pre-reading caution : Read “Petty Cash Tips For Custodian” will give a better understanding about this topic

There are certain typical events and conditions on petty cash that need specific treatment. As a petty cash custodian, you should be ready and adapt to these conditions. Best procedures and policy is just not enough when the custodian is not ready.

Here are some typical events and conditions that common happened in petty cash role, some tips come along with those :

Cash from Sales or Account Receivable

Cash receipt may only come from General Cash account or Checking account. Any cash coming from Sales or account receivable should be submitted to the General Cashier. In this case Send payer to general cashier. Should the General cashier isn't available, you may need to take care the cash receipt temporary, in this case you need to perform the following :

1). Count the money, and put it into a separate envelope labeled with note on it.

2). Issue a cash receipt and a memo to be submitted to the financial controller

3). Transfer the money as soon as the general cashier available. It should been done before the closing day. This transaction should not effect your cash balance, therefore it should also not much bothering the main tasks.

Cash Advance & I Owe You

Try to avoid IOU's and cash advance. For this purpose, always keep some small money and coins in sufficient amount. If you have to do IOU's or Cash advance, you should always put the actual amount drawn from the box, and make a cash receive or cash disbursement slip accordingly. If later on the cash is returned by the purchasing custodian, then treat this as a cash receipt by posting an opposite journal.


Petty Cash Balance below fund float level

You should be able to estimate the next ending balance, the balance desired to be decreased, then you should request for additional fund, asking for IOU is potentialy a problem. Avoid this, and submit a request for additional petty cash fund instead.


Petty Cash Balance above float level

If the float seems to exceed the maximum float level, then make a memo to financial controller and submit the cash to the General cashier upon the approval.


Petty Cash Lost or Stolen

1). It's rarely happened, but it could be happened.
2). In This case, you should react right away, submit official report to financial controller
3). Wait for further instruction
4). Don't move anything and don't go away from your station unless it's instructed


Shifting

On every shift exchange, a physical count should be performed and official responsibility transfer should be documented.

Personal day off & Vacation

You may required to replace your co-custodian who is having a day off or vacation. In this situation is also requires a physical count and official notes should always made and filed. Perform your job as it should be.


Resignation

Resignation by custodian should be made at least 2 months before the effective day. Management need more time to prepare and transfer your responsibility and conduct some training for the new custodian, you should not leave till the new custodian is ready for his own role.

PETTY CASH TIPS FOR CUSTODIAN

Here are some tips for day to day Petty cash treatment & keeping :

Petty Cash Opening (5 minutes time allocated)

Do the follwing step At the beginning of working day:

1. Open the "Petty Cash Spreadsheet"

2. Check every farmula on cell remain correct

3. Open the "Petty Cash Reconciliation sheet" as well

4. Check every formula and make sure no erroneous on it

5. Fill the expected opening balance column (it should be equal with the previous actual closing balance)

6. Perform physical count

7. Put the physical amount into the "Petty cash Reconciliation Sheet" right on the actual opening balance column.

8. Compare the actual opening balance with the expected opening balance, it should no variance. Should any variance arisen, make a note (memo) to be submitted and approved by Financial Controller.

Now you are ready for your today's very first transaction


Petty Cash Receiving (5 minutes time allocated)

1. Once the cash received from Checking account, Count the cash right away

2. Issue a cash receipt slip

3. Put the cash into the petty cash box

4. Update petty cash book/spreadsheet

5. Compare the updated balance with the actual cash in the box, it should be equal with previous balance plus cash receipt

6. File the slip to a binder labeled with "Petty Cash Receipt "


Petty Cash Disbursement (5 minutes time allocated)

1. Verify purchase request received from department, make sure it's written and authorized, correctly follow the procedure set by the management.

2. Check unit price with authorized price list

3. Do a quick cross checking with inventory custodian about stock availability, in the case that request made on an availability stock, refuse the request promptly. Otherwise go a head to the next step.

4. Do a quick test by re-calculate the total amount.

5. Do a quick cross checking to the authorized person for the purchase.
write a cash receipt to be signed by purchaser

6. Disbursed the cash (always avoid a cash advance, this will minimize variance possibility much lessen and final daily reconciliation become headache no more).

7. Update petty cash spreadsheet

8. Compare the updated balance with the actual cash in the box, it should be equal with previous balance minus amount on the slip

9. File the slip to a binder labeled with "Petty cash disbursed "


Petty Cash Physical Count (3 minutes time allocated)

Always performed "quick physical count" every time cash just received or disbursed. It will keep your cash always in neat and clean balance time to time. However, deeply physical count to be performed on every opening and closing day.


Petty Cash Reconciliation (5-10 minutes times allocated)

Once the physical count is done, put the physical amount into the "Petty Cash Reconciliation sheet" compare the actual amount with the expected ending balance pulled from the petty cash spreadsheet or download from the Financial Information System.

Should any variance occurred, perform the following step :

1. check the formula on the spreadsheet to ensure correctness, if it still not fixing

2. If the above still not fixing, do re-count the physical cash

3. Compare amount written on the slip with amount you type on the spreadsheet or system, make sure it's tied out. If you catch the error, fix and compare it again. Mistyped often happened.

4. If it's not fixed yet, screen for any IOU's or Cash advance given to purchasing custodian.

5. Compare again, keep tracking it back, till the error is found and fixed it.

It should matched now, you may go head and start for closing day process.

Reconciliation process become a very time consuming when quick physical count is not always performed on every single transaction.


Petty Cash Closing (5 minutes time allocated)

Once reconciliation has completed, make a daily audit report and reconciliation, signed by you (as a custodian) and the Financial control to approve it. always lock the box and save the box in a metal cabinet

For further reading, I recommend to read : Typical Events and Conditions on Petty Cash, Petty Cash Spreadsheet, Petty Cash Reconciliation sheet.

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.

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