“Why Are My Bank Balances So Far Off?”

This may come as a surprise, but just because you “reconcile” your bank accounts, doesn’t mean that your balances are correct.

An important step in the reconciliation process is looking at what’s left over. In other words, while you definitely want to know what cleared the bank account, you also need to know what didn’t clear the account.

Here are just a few questions you should be asking before finalizing your reconciliations each month:

Q1 - Are there old outstanding transactions that will never clear the account, such as stale checks, or duplicate deposits?

Those transactions need to be dealt with - but be careful…we don’t want to simply VOID or DELETE a bunch of transactions - especially if they are dated in a prior fiscal year. Sadly, I’ve seen bank reconciliations that show old transactions dating back 10+ years! If this sounds familiar, don’t go it alone.

Q2 - Do you have transactions that were categorized to a particular bank account but were supposed to be in another account?

Example: a deposit belongs in your General Checking account, but it shows up in your Savings account by mistake. You may think it’s an easy fix to simply change the “Deposit To” account - but be careful…if you’ve already reconciled the General Checking account, there’s a good chance that the deposit sitting in the Savings account is a duplicate transaction - along with any details that were included therein.

Q3 - Are transactions showing up on the “wrong side of the ledger?”

Example: you are looking at the list of outstanding CHECKS and you see a DEPOSIT transaction. This can occur when the person entering the deposit used the same account for the “Deposit To” account (at top of the deposit window) AND the “Category” Account (in the body of the Deposit screen).

In other words, if you pull up the transaction, the deposit is essentially saying that you deposited money into the General Checking account and the money came from the General Checking account. This would be akin to writing yourself a check and then taking it to the bank and depositing it to the same account. If this sounds familiar, you may be tempted to delete the outstanding transaction showing up on your “uncleared checks” list, but be careful….there’s a good chance that the deposit side of the transaction has already been reconciled.

Heed the pop-up warnings.

It’s important to know that your reconciled balance is simply the sum of all of your reconciled deposits offset by your reconciled checks. If you delete a reconciled transaction, your beginning reconciled balance will automatically adjust and almost always will create an “out of balance” warning on your initial reconcile page. Therefore, it is important to heed all warnings about deleting reconciled transactions and seek professional guidance when faced with bank reconciliation dilemmas.

While technology can make our reconciliation process easier, putting your complete trust in technology can lead to bank reconciliation issues - or worse, the temptation to move to “bank balance accounting” which is never the right answer. More on that idea in an upcoming blog.

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