Hello and welcome to another episode of always up to date. My name is Denise and this is [inaudible] and we are co owners of always bookkeeping. Um, today we’re going to be talking about bank reconciliations. Uh, so as you know, we have a quote tennis statistic. And so our quote today is actually from Albert Einstein. Um, his quote is if you can’t explain it simply you don’t understand it. Um, and the statistic that we have is that 50% of all businesses are out of business in five years and, uh, 29% of those businesses failed because, um, they S the site that they’ve ran ran out of cash. Um, so it’s important for us to talk about bank reconciliations and see where our cash balance is at, have an understanding of that. Um, so you know, we have businesses that are trying to make, um, decisions, major decisions based on their cash balance and um, the don’t know how to look at their reconciliations properly or they don’t have any bank reconciliations with Edmonton Bookkeeping.

And so their cash is out. Um, they think they have this amount, but in their bank they actually have this amount and so they can make some pretty major mistakes if they’re, um, depending on a bank reconciliation that isn’t done correctly. So y’all where you have some questions for us to the yeah, absolutely. So first one, what is the purpose of a bank reconciliation? Yeah, so sort of, um, what I just talked about. The bank reconciliation can help us to understand how much cash is actually in the bank. Um, we use those bank reconciliations and, and reconcile them to the statement, make sure that the registered balance matches our um, balance sheet so that we can be sure that our balance sheet and our income statements are correct with the cash so that when we’re looking at those, we know exactly how much money we have in the bank to make these decisions that, um, may require a fair amount of cash and abs.

Uh, the, the re, the main purpose of bank reconciliation is checking your records with the banks records. Um, there are items that might be in your records that wouldn’t be in the bank. For example, if you’ve recorded checks that hasn’t been, um, deposited by your suppliers, that’d be something on your side. And, um, if you look at the interest in bank charges on the bank or some NSF, um, checks, then that would be, um, one of those items that you wouldn’t know until you see the bank statements. So, um, [inaudible] bank, excuse me, bank reconciliations, it are very important when it, uh, when it comes to checking you are actual cash balance, right? [inaudible] excuse me. So same question. What is the difference between the register balance and the statement balance? So the statement balance is the balance that matches your bank statement. So in your accounting software, whichever it might be, um, you want to look at your statement balance first and make sure that it matches your, the statement from the bank that have Edmonton Bookkeeping.

Um, then in between the S the statement balance and the registered balance, you may have unclear transactions. Um, the register balance is the balance and it should match the same day on, um, in your balance sheet. So if you go into the cash account and your balance sheets and look, uh, say your, your, um, balancing or reconciling the may bank statement, your statement balance should match to the end of may or whatever date is on your, your bank statement. The registered balance should match that same date in your, your, um, balance sheet. And uh, it should, it should be the same as that. If it’s, if it’s out, there’s something wrong with those unclear transactions and you, you really want to look at the ledger. Um, some of the, the accounting software these days, they, they’re very good to capture the bank reconciliation that the date that you did them.

I know some of them will adjust on that depending on what, um, transactions you’ve entered. So, um, if, if it’s the first is then it’s very easy to find out the changes in between. Um, what happened between your last bank reconciliation and the transactions that you have before your next reconciliation. If it’s on the second one, it’s a little bit harder. If the bank, uh, reconciliation keep adjusting based on, uh, the changes that you made because you really have to find out, um, what transactions are still uncleared until your next one. Yeah. Um, why is checking the statement balance for a good idea? Yeah. That’s kind of your starting point. If your balance, um, doesn’t match your statement, if your statement balance doesn’t match, then the rest of your reconciliation isn’t going to work out properly. So it’s um, so important to check the statement balance first and make sure that, um, what you have in your records is what the bank actually has in their records as well.

Um, if for register balance doesn’t match the ledger is a future item work and Mark cleared. Yeah. Usually if the registered balance, um, doesn’t match, that’s exactly what’s happened. You’ve, you’ve checked off a, a check or a deposit that actually occurred in a leader month. Um, so often I know, especially if you’re bookkeeping, you may be trying to catch somebody up on their Edmonton Bookkeeping and, um, lots of times, you know, you’re used to putting in 2019, but you’re reconciling 2018 sometimes you grab a transaction from 2019 and add it to that bank reconciliation. And so then your registered balances out and you know, um, it’s, it’s so important to check that registered balance as well. Lots of times people will just check the, the statement pallets and think their bank reconciliation is done. But that registered balance is so important as well to make sure that you haven’t taken any of those, um, future transactions and added them to the statement that you’re working on currently.

Um, what items are in the unclear charges? Yeah, so there can be, um, multiple things in the [inaudible] uncleared uh, charges. Um, the, the main thing is checks that, um, haven’t been deposited yet. So you write somebody a check and, and they’ve just put it away and forgotten about it or, um, just haven’t had a chance to get to the bank or whatever. And so, um, that’s the main thing. Um, there could be some, um, some, um, yeah, well it’s sometimes they could be, um, uh, post dated are the posted date might be different from the actual transaction date. So those might be the ones that you might have recorded based on the date and the receipt, but they wouldn’t show up onto your bank statement until a later date because they weren’t posted yet. So those are the end clear transactions. Um, I would take a look at those all the time because you wanna make sure the reasonability of why there is still unclear without Edmonton Bookkeeping.

Um, if they’re, uh, especially for those, um, uh, purchases that you’ve made that are meet from your bank cards, those should be posted in two business days the most. So if they’re hanging in there for more than one bank reconciliation, then maybe they did not happen or maybe there is a double entry. It happened. [inaudible] yeah, right. Yeah. And we see that a lot. We see lots of people that, um, don’t really think about those transactions. They don’t, whether they don’t know what to do about them or they don’t think they’re important or whatever, I may stay there for months and months or um, you know, even years we’ve seen some that have been there for years just sitting there and something needs to be done with them. Yeah. Yeah. Um, why can’t checks be outstanding for more than six months? Yeah. So once a check is outstanding for more than six months, technically it is considered stale, dated.

Um, and so it’s no longer good. So if you have a check that’s on your uncleared items, that’s more than six months old, you’ve got to figure out why it’s there. Again, like you said, is it something that actually didn’t occur? Did the, that you gave the check to just forget about it and have they haven’t cashed it? Um, you know, what’s going on with that? You need to figure out what is happening with that particular check. Um, why should it electronic payments show us and clear transaction. Um, so electronic payments, um, they should not show his unclear transactions because they, they should happen that day. That’s basically what they are, right. Is electronic. And so they happen immediately. Um, yeah, so like if you, if you do a deposit or if you write a check or something, it may take a few days to, um, to hit the bank with Edmonton Bookkeeping.

But electronic transfer, electronic transaction, it should happen that same day. Um, now it could, it could be a situation where it’s, um, the next day if it’s like if you make the transaction later in the evening and the bank hasn’t posted it to the bank yet or weekend. That’s right. Yeah. So it could be that situation, but it should, if it doesn’t clear that day, it should clear for sure the next day, the next business day. Absolutely. Yeah. How long does it take from most outstanding deposits to clear? Um, so again, if it’s a, um, electronic deposit, it should happen immediately. You should see that in your bank the same date. Um, other deposits you do a bank deposit, um, could take a couple of days to, to clear. Um, again, if it’s a weekend or a holiday, you might not see it til the next, next, um, business day. Um, if you’re, um, reconciling an account at the end of a month, you might not see it until, and you deposit, you made your deposit that last day of the month, you might not see it till the next bank reconciliation Edmonton Bookkeeping.

Um, so deposits I think are okay to see uncleared for the next deposit, but they shouldn’t be on there for more than an another reconciliation for sure. Absolutely. You shouldn’t be avail up. The money should be available to your bank. If not, then the, the bank might’ve put a hold on it. So you might want to contact your bank about that and make sure that you’d be able to use that cash for your business. Yeah. If you have a fictitious unclear deposit, is revenue normally overstated? Yeah, for sure. It’s, it’s overstated. Um, so if you’ve made this deposit, uh, in error, so, um, lots of times what happens is, um, you know, you might get an invoice and you send a check out to pay that invoice. Um, sorry, we’re talking about deposits. Somebody sends you a check to pay for that invoice. Um, but you never received the check.

And so then maybe you send them another, um, another invoice and they pay that one and you book in a second time. Um, you might see that deposit more than usually that’s what the problem is, is that you’ve put it in your, your accounting software twice. Um, and so then it looks like you have more money than you actually do. Yeah, I know their situation is that, um, and this is a common mistakes for bookkeepers, they, uh, it’s harder for them to, uh, to match the deposits with the actual payments cause it, um, especially for business owners who have external bookkeepers. Um, if you don’t provide them with your, um, bank deposit slips, they wouldn’t necessarily know unless that exactly matches the amount. So most of the bookkeepers might book the, um, the, the deposits as, um, sales receipt or a shareholder contribution without Edmonton Bookkeeping. There’s so many things that they can categorize it for and the payment, if the payment has already been booked in, um, in the software, then you have a double entry in there.

And, um, that’s the mistake that we’re trying to catch with these and clear deposits as well. Yeah. Um, if you have a fictitious and cleared check, our expenses can really overstated. Yeah. The same as the deposit. If you have a check that’s been uncleared over and over again, again, if you, you might’ve have double booked that check or um, you know, whatever the case may be. And again, it’s gonna look like your expenses are more than what they really are. Um, are the rules the same for related party or shareholder amounts? Yeah, like you were saying, sometimes it, um, a deposit will get booked to the shareholder account or an expense we’ll get booked to there. And again, it may be in that, um, unclear transaction section of your bank statement. Um, you know, most people understand unclear checks, unclear the expenses, but then they see a, um, shareholder loan expense or deposit and they think, Oh, it’s just the shareholder loan.

It doesn’t really matter, but it does matter because it’s going to make a difference on your cash balance in your, in your balance sheet. And then your income statement B might be out as well. And again, like we were talking about, um, you know, if, if, um, you’re trying to make decisions based on how much cash you have and your balance sheet and income state men are incorrect, you’re going to be making some mistakes on those decisions. Yeah. And especially, um, another common mistakes that bookkeepers make is booking the transfers as I’m going, uh, outgoing transfers as expenses or um, in, uh, sorry, incoming transfers as income you don’t get, you don’t want to get tax on the incoming, um, transfers that was supposed to be, um, let’s say you contributing. And also if, if the outgoing transfer was booking as a shareholder loan, you don’t want to get tax on personally too, cause you’ll have, you’ll have to have, um, that entry, um, that’s gonna figure out your salary or your dividend at the end of the year.

You don’t want to, you don’t want to get personally taxed by that mistake. So, um, those are the items that makes it really, really critical for a shareholder of transaction or intercompany transactions when it comes to, um, Banco conciliations and bank transactions. Right. Yeah. Um, how often do you clients have fictitious and cleared items and what should they do about it? So, um, you know, it would be really nice to be able to say that rarely ever happens, but it probably happens, I would guess more than 50% of the time. Um, people just don’t know. Maybe they don’t understand. Um, you know, just like our quote said, if you can’t explain it simply you don’t understand it. And so maybe they don’t understand what those uncleared items are. Um, they just don’t know how to deal with them maybe, um, and they leave it there with Edmonton Bookkeeping.

So I think if you don’t understand it or you can’t, um, you can’t explain those, those things, then you need to find somebody that can, can explain those. Um, like we said, it’s so important to have your bank reconciliations correct so that when you’re looking at your balance sheet and your income statement, um, you know exactly where you are with your cash. Yeah, absolutely. Um, also, uh, we’d Vick dishes and cleared items that, um, this mostly happened when you have an external bookkeeper. Um, cause most of, most of the time your business is small enough that you can use your bank statements to do your bookkeeping. Um, sometimes you’ll have to, um, bring checks and stuff like that and those will not be cleared until, uh, at a later date. So those are the items that you want to, um, think about because again, if you’re making a decision based on cash, that cash should be close to what you should be expecting at the end. That’s right. Yeah. Uh, so I think that’s all the questions we have. Thanks for joining us for this episode. Um, please click like and subscribe if you have any comments or you have any suggestions on what videos you want us to do. Um, please feel free to comment below and we’ll see you guys next time. On our next episode.