Are bank reconciliations obsolete now?

Are bank reconciliations obsolete now?

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now that the majority of cash book transactions are done without using cheques isn't best practice to actually post the cash book direct from the bank statment and then if necessary make a year end  adjustment for any exceptional item?

I have seen too many incorrect bank recs over the years

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By Monsoon
29th Jul 2011 17:59

Are cashbooks obsolete now?
I can't remember that last time I saw a cashbook! Ah yes, it was in my exams....

No, bank recs are not obsolete, but given how many people use proper accounting software now, with the advent of more non-accountant friendly packages, if they are fully reconciled, then it's mostly all that is needed in that regard.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
29th Jul 2011 18:41

This is a long-running debate

Some software companies (and other interested parties on AccountingWEB) have been lobbying for the bank statement-driven approach to SME accounts for some time.

If you click the electronic cashbook link, you can see how the debate has evolved since David Carter first lobbied for the idea in 2006.

Sorry if the link is slightly misleading, but that's the tag we initially applied and haven't gone back to retag the articles with a better one

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By listerramjet
31st Jul 2011 11:46

No

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By loz
31st Jul 2011 11:54

And possibly yes....
Anything that helps non accountants keep their books more accurately and more up to date should be seriously considered - that is a huge feature of online accounts packages that link directly to bank accounts such as Xero.

Times are changing.

Clients are moving more quickly than their accountants are.

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By Richard Willis
01st Aug 2011 09:17

If, by Bank Rec, you mean

does the figure in the accounts either match or is able to be reconciled to the bank statement then no, they will never be obsolete.

If, however, the software, correctly used, produces the same figure as the bank (assuming that no cheques are involved), then the simple act of checking that they are the same is, to my mind, a bank rec and I would record the fact in my monthly routines.

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By nick farrow
01st Aug 2011 10:02

2 common errors

bookeeper 1 didn't post(record) a bank payment (HMRC CT payment) cos didn't know what it was

bookeeper 2 kept cheque payment to supplier on reconciliation for 2 year ends even tho cheque was torn up and immediately resissued

in both cases they assured us "bank was reconciled" which I agree it was - in a useless way

ps i'm not talking about manual bookeeping whatever that is but QB or sage etc

 

 

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By Jimess
01st Aug 2011 10:04

Bank reconciliations

I cannot see bank reconciliations being a thing of the past - some professional bodies insist on them being an integral part of their accounting routines (Law Society for example), HMRC routinely ask the question in full enquiries if all bank and cash accounts in the accounting period in question are reconciled and were there any differences.  I personally see the main business bank account as being the crux around which the majority of business transactions revolve unless you are dealing with a very small cash based business.  Even then from the point of view of ensuring the client has a full transaction trail I encourage clients to bank takings and draw cash as required - expensive on bank charges but it is even more expensive to prove a cash transaction trail in a tax enquiry.  So I would say yes - the bank needs to be reconciled periodically.  How often this should be done depends very much on the size/type of business and the volume of transactions going through the account.  From experience with my own clients even posting from bank statements will throw up errors and unless the client really understands the interaction of the bank account into the accounting records in their entirety and the impact of the postings they make you will always have problems balancing bank accounts.  A lot of businesses have not thrown away their cheque books just yet.   Working directly from the bank statements works fine if you receive and pay everything electronically so that everything is processed in the bank account on the day of the transaction, but a lot of businesses still need to use the old fashioned methods due to the way their customers pay them. 

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By TraceyBurgess
01st Aug 2011 11:13

Bank recs

The company I work for use bank recs and our auditors insist on having them - even if the bank statement is the same as the BS figure. 

From my point of view I will always carry out a check of postings, when doing the bank rec, at month end as it is very easy to have equal and oppsite errors that won't affect the month end figure, and even though we do still use cheques we quite often have BACS runs that span the month end and these are factored into the bank rec.

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By DMGbus
01st Aug 2011 13:46

Cut off point

There always will have to be asked "are there any outstanding transactions?" be they (traditionally) unpresented cheques (cheques are are still very popular and alive and well with most clients), or quite often debit card payments made that take a few days to appear on the bank statement.

So "reconciling" to an internet bank statement dated 31st July 2011 for a 31st July VAT return is just NOT GOOD ENOUGH if there's been a payment to a supplier made over the 'phone or counter by debit card in the few days leading upto 31st July - to things PROPERLY the first week's bank statements of August are required to capture these in-transit transactions.

Also don't overlook credit card receivable monies which again won't necessarily be complete looking at a 31st July bank statement.

 

 

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By Gilly
02nd Aug 2011 14:21

No.

Don't forget that banks make mistakes sometimes.

If you don't reconcile the bank statements (and other balance sheet accounts), what alternative check would you do?  I still see plenty of cheque payments, but they aren't the only reason to do a bank rec.

Yes bank reconciliations can be incorrect, but so can bank statements and anything else that human beings have a hand in. 

 

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