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This simple procedure of reconciling bank accounts is extremely important. However, for a variety of reasons, many people just don’t do it. This is a primary way to establish internal control over a company’s cash. The goal is to compute the true cash balance that will be reflected on the balance sheet as of a particular date.
However, sometimes this process is frustrating because the general ledger for the cash account rarely equals the bank’s balance. There are several potential reasons why the accounts don’t balance. Carefully consider these options when hunting down the possible culprits.
Reasons Why Accounts Might Not Balance
- A missed service charge to the bank account: There are some fees that the bank charges consistently. However, some may come as a surprise. For example, there may be an overdraft fee on the account while you were unaware that the account was overdrawn.
- A note receivable the bank collected for the company: When the collection is made, the bank is made aware of the collection before the company is.
- Interest earned on the bank account
- An error made by the bank: Catching this type of error can pay off for the account. Make sure you have records to prove the error as well.
- A deposit in transit: You have recorded a deposit made but it has not yet been cleared by the bank.
- Outstanding checks: Checks written to vendors may not be deposited by the vendor in a timely manner. The amount of all outstanding checks must be subtracted from the bank’s balance.
- An error made in the company’s books
To reconcile the general ledger with the bank account statement, make any adjustments needed on the company’s balance sheet.