Since the seller’s obligation has not been filled, the cash has not been earned, and the seller records this as a liability on the Balance Sheet via a deferred revenue balance. Deferred revenue is especially common among subscription and SaaS companies, in which payments are made upfront in exchange for service periods in the future. A cash reconciliation is more complex and comprehensive than a bank reconciliation because it involves a company’s entire financial technology stack. Below are the four most common systems involved in a cash reconciliation. They can vary depending on company size, business model, or technological maturity. Multiple financial systems are involved in a cash reconciliation and generally, cash balances across these systems do not match.
It is not unusual for businesses that maintain a petty cash fund for quick purchases of items under a certain price to undertake the petty cash reconciliation at least once each week. In some cases, the process of reconciling cash on hand with the accounting records may occur on a daily basis. The decision of how often to engage in this type of reconciliation depends on the amount of transactions executed each day or week, and the type of cash accounts involved. A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed.
Timing Differences in Recording of Transactions
Reconciling the general ledger ensures you correctly recorded each transaction by comparing source documents — statements, checks, and invoices — with accounting records. An outstanding cheque refers to a cheque payment that has been recorded in the books of accounts of the issuing company. But, the cheque has not yet been cleared by the bank as a deduction from the company’s cash reconciliation cash balance. As a result, the balance as per the bank statement is lower than the balance as per the cash book. Such a difference needs to be adjusted in your cash book before preparing the bank reconciliation statement. Outstanding checks are those that have been written and recorded in cash account of the business but have not yet cleared the bank account.
But of course, the biggest issues occur around missing cash or missing documentation. A successful petty cash program relies on a diligent custodian, and on the rest of the team following the rules. Vouchers may be incomplete or vague, and team members may not understand the reasons why expense accounts need to be precise.