BSBFIA303PROCESS ACCOUNTS PAYABLE AND RECEIVABLEPRESENTATION 2

PRESENTATION OBJECTIVES

At the end of this presentation you will be able to:

• Check cash journal against bank statement

• Identify discrepancies

• Total cash journals

• Prepare reconciliation reports

CASH JOURNALS AND THE BANK STATEMENT

To correctly prepare bank reconciliations, organisational procedures and the terms that

banks use to process accounts and issue statements must be clearly understood.

Cash movements in/out of the bank general ledger compared against bank statements

from your bank. All businesses must match their cash at bank figure with the banks

figures:

• Ensure accuracy of the bank account in the general ledger

• Check bank statement is correct

• Identify transactions recorded in the bank statement that have not been recorded in

the cash journals

• Determine cash receipts that have not been deposited with the bank

• Identify cheques issued but not presented by the payee to the bank

• It is common for the bank statement and cash journals to have different balances.

A reconciliation should be prepared at least one a month it can aid in finding

differences quickly allowing for prompt solutions.

Reconciliations are used to determine differences between the bank and the

business.

CASH JOURNAL AND BANK STATEMENT

Banks use double-entry accounting as well!

When recording amounts in customer’s account any deposits made

by an organisation will be recorded by the bank in the credit column

(money the bank owes the business)

Withdrawals will be recorded in the debit column.

The bank follows the double-entry rules that relate to a liability

Your organisation prepares its calculations following the rule that

relate to an asset.

So - the bank does the opposite of your business with its accounts.

CASH JOURNAL AND BANK STATEMENT

To prepare the reconciliation, gather data and source documents:

• Balance of the bank account in the general ledger at the start of

the month

• Details of cheques or direct deposit amounts not presented at

the bank in the previous month

• Details of deposits not credited to the bank in the previous

month

• Month’s cash receipts and cash payments journal

• Monthly bank statement

If you have trouble balancing you may need to confirm details using

the invoices and statements from suppliers and to your customers.

RECONCILIATION PROCEDUREReconcile deposits

1aMatch corresponding deposit amounts in bank statement (credit column) with corresponding amounts in the cash receipts journal. Put a check mark next to items that match in both. Always work from the bank statement to the journal.

1bIdentify any un-checked items in the bank statement. These items may not yet have been recorded in the cash receipts journal. Record the item(s) in the cash receipts journal and then check mark items in both statement and journal.

1cIdentify any unchecked items remaining in the cash receipts journal. These are deposits that have not been presented to the bank yet.

Reconcile payments

2aMatch corresponding cheque (or direct deposit) amounts in bank statement (debit) with matching payments in cash payments journal. Put a check mark next to items that match in both.

2bIdentify any un-checked items in the bank statement. These are the amounts withdrawn from the account that may have not been recorded in the cash payments journal. Record un-checked items in cash payments journal then check mark items in both statement and journal.

2cIdentify any unchecked items remaining in the cash payments journal. These are cheques the organisation has issued that have not been presented to the bank for payment.

Record results

3Using the opening month’s bank balance and totals of the cash receipts and cash payments journals, calculate the closing balance of the account in the general ledger at the end of the month

4 Prepare a bank reconciliation statement using the items identified in steps 1c and 2c

RECONCILIATIONS MATTER

• They allow us to gain an accurate picture of the position of the

business

• Without reconciled accounts we do not understand if our accounts

are correct

• Reconciliation confirms the correct entry of each transaction

• Allow us to be fully informed with regard to cash flow into and out

of your business, how else will you know what is due to be paid

and what is due to be received?

• This forms an important part of the process of creating correct

financial documents which enable accurate planning for the future

of the business

IDENTIFY DISCREPANCIES

Errors in the cash journals should be identified when reconciling with

the bank statement. Is the problem a timing one or an entry one?

Discrepancies to be aware of include:

Bank charges - charges for the bank’s services automatically deducted and shown

on the bank statement

Direct deposits – direct payments into the

organisation’s account that will bypass

organisation’s bank records

Direct payments – direct payments to creditors,

will appear on bank statement but not yet in

organisation’s bank records

Interest – earned from the bank, automatically

credited to the organisation and shown on the bank statement

HOW SHOULD A DISCREPANCY BE RECTIFIED?

Once you identify a problem consider the following questions:

• What type of discrepancy is it?

• How can it be fixed? Can you do it yourself?

• Do the financial records need to be revised?

After identifying the discrepancies within your organisation’s financial

records, it may be that you need to pass these on to the designated

persons in accordance with organisational requirements.

These people could include:

Line management or supervisor

Organisation’s authorisations department

IDENTIFY DISCREPANCIES• The first step to take when an error is found is to check the

duplicate receipt or invoice

• If found, then the journal can be corrected to match the bank

statement

• However, if the error is not found in the original documentation

then there is a chance that the bank may have made the error

• When checking for discrepancies always start with checking

internally before reaching out to the financial institution

If transactions are not entered or entered incorrectly steps must be

taken to adjust, follow your organisations procedures when correcting.

It is never good practice to delete a transaction, check with your

supervisor if you are unable to proceed.

TOTAL CASH JOURNALS

The cash journals must be totalled before they can be used to

prepare the bank reconciliation.

The term ‘totalling’ really refers to balancing the ‘total’ entries

found in the vertical columns of the journal with the ‘total’ entries

found in the horizontal columns.

To ensure accuracy in this process remember:

• The cash payments journal should be checked against the

cheque butts and bank statements

• The cash receipts journal is to be checked against the receipt

book, cash register roll and bank statements

PREPARE RECONCILIATION REPORTSA reconciliation report is similar to other business reports in terms of

presenting recommendations, findings and solutions.

It includes results of the reconciliation, errors and adjustments, as well as:

• The reconciliation statement

• Any inconsistencies found, differences in accounts

• How errors or inconsistencies were dealt with

• Being able to identify repetitive mistakes

Clearly record any queries made with your financial institution or others

internal or external for verification of information. In this way others will

understand steps that have been taken to rectify errors.

Reconciliation reports need to be stored with all records for the same

period. This means accessing data for the period is easy and efficient.

WHY RECONCILE?Reconciliation leads to accurate financial records that are verified by the processes of matching

transactions with others to balance the books. Figures that have been reconciled:

• Lead to more accurate financial statements

• Prove that the balance of the particular account is correct and verifiable

• Minimise errors

• Lead to early detection of problems and avoid costly time consuming mistakes and the

time to correct them

• Minimise the potential for fraud

As a rule of thumb use this check list to help you with your reconciliation. If any of the answers

are incorrect, make the changes and check again. Accounts payable Accounts receivable Are all entries correctly entered?   Are all entries correctly entered?  

Are all invoices correct from your supplier, have they been checked?

  Are all invoices to your customers correct, have they been checked by an independent person?

 

Are all invoices entered correctly into the purchases journal?

  Are all invoices entered correctly into the sales journal?

 

Is GST correctly recorded?   Is GST correctly recorded?  

Have all credit notes or returns been entered properly?

  Have all credit notes or returns been entered properly?

 

Have all payments been applied to the suppliers account properly?

  Have all payments been applied to the customer’s account properly?

 

Does the statement from the supplier match your transactions, credit and payments?

  Is your statement accurate and match your transactions, credit and payments?

 

PRESENTATION OBJECTIVES

Now that you have completed this presentation, you will be able to:

• Check cash journal against bank statement

• Identify discrepancies

• Total cash journals

• Prepare reconciliation reports