Bank reconciliations are an important part of accounting. Reconciling bank accounts means comparing the records of a bank account with the actual balance in the account.
This is done by first updating the account balance with any recorded transactions, then by adding any unrecorded transactions, such as service charges.
Bank service charges are transaction fees charged by a bank for certain actions, such as withdrawals or checking your balance online. These fees are not always recorded on the account statement, so they must be added to get the true balance.
There are two types of banking transactions: direct and indirect. A direct transaction is one that directly affects the account balance (such as a deposit or withdrawal). An indirect transaction does not change the account balance (such as a service charge).
This article will discuss how to handle unrecorded bank service charges on a bank reconciliation.
Subtracted from the bank deposit
When the bank service charge is recorded on the bank statement, it should be added to the bank deposit when doing a bank reconciliation.
If the bank service charge is not recorded on the bank statement, it should be subtracted from the total amount of the deposit when doing a bank reconciliation.
Bank service charges are fees that the bank charges for providing services such as ATM use or transaction disputes. They are an indirect cost of doing business with the bank.
Because they are fees, they can be disputed and removed if you do not utilize certain services. Most people do not dispute them, however, so they should be accounted for during a bank reconciliation.
During a bank reconciliation, all checks and direct deposits must be accounted for to make sure that the new balance in the account is correct. If all items are accounted for correctly, then the new balance in the account is correct.
Added to the bank withdrawal
When a bank service charge is assessed to the account, it should be added to the total amount being withdrawn from the account.
This is different than adding it to the total amount of the transaction being made. For example, if there is a $5 monthly service charge and there is a $100 withdrawal, the $100 should be increased by $5.
The reason for this is because of how reconciliations work. When you are doing a bank reconciliation, you are checking your accounts to see what money is actually available.
If you did not add the service charge to the withdrawal, then you would not recognize that money as being available. This would cause an error in your records and on your banking system.
Therefore, it is best to add it to the withdrawal amount so that it can be recognized as available money.
Subtracted from the bank withdrawal
When a bank service charge is recorded on the banking system, it is the responsibility of the bank account holder to record it on their accounting system.
This includes your own personal banking system, as well as business accounts. It is up to you to make sure you have an accurate record of what money you have available.
In a situation where a charge is not recorded by the bank, it is common practice to subtract it from the recorded withdrawal amount. This way, there is no double accounting for the money that was taken out.
Bank reconciliations are done on a regular basis to check for any discrepancies in accounting. If there are any found, they are corrected and adjusted for in future transactions and/or statements.
Nothing, it is just an error on your part
When a bank service charge is incurred but not recorded, it is considered an accounting error. You did not intend to pay the bank for the service charge, therefore it was an error that was not recorded.
The best thing to do with errors is to reconcile them. Reconciling your bank account means comparing your bank statement balance to your account balance.
If the two balances are the same, then you have no errors on your record and everything is correct. If there is a difference, then you have an error that needs to be corrected.
Reasons For Bank Reconciliation Mistakes
There are several reasons why someone may make a mistake on a bank reconciliation. One of the most common reasons is because people do not know how to correctly do one. Other reasons include lack of attention or confusion with the process.
Something else
A final tip on a bank reconciliation is to make sure the bank doesn’t charge you a fee for any of their services.
If there are any service charges assessed by the bank, your accountant should check that they are fair and that you were not charged for services you did not use.
Making sure that you are not being charged unnecessary fees by the bank is a small thing, but it can save you money in the long run. Your accountant will be familiar with how to do this.
Bank reconciliations can sometimes be a tedious task, but they are very important. Making sure that all of the numbers on your reconciliation are accurate is an easy way to keep your finances in check. Whether it is checking the numbers yourself or having someone else do it, finding mistakes early on is important.
