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seka · Aug 20, 2009, 02:27 AM

When the Bank Charge you 150 on your cheque # say 88001 instead of 100 in the Statement, do you Treat the cheque as unpresented (100) and Wrong Debit (150)?

ArcSine · Aug 20, 2009, 04:00 AM

I think a good approach would be to record the check as cleared, for 100. Then in addition, record a 50 reduction in your checking account, which would be debited to a short-term receivable; e.g. "Receivable from Bank Error".

When the bank reimburses you the error, you'd then debit Checking and credit off the temporary receivable.

rehmanvohra · Aug 20, 2009, 05:54 AM

Originally Posted by seka

When the Bank Charge you 150 on your cheque # say 88001 instead of 100 in the Statement, do you Treat the cheque as unpresented (100) and Wrong Debit (150)?

I prefer this approach and in the meantime, I would request the bank to correct the error. When the error is corrected by the bank, both the items will be removed from the reconciliation statement.

In some countries, the bank returns the paid checks to their customers. In this case, it is easy to check who actually made the error so that necessary corrections can be made.

ArcSine · Aug 20, 2009, 07:07 AM

I can see validity in your approach, Rehmanvohra, but personally I'd prefer not to have on my books--albeit temporarily--the two fictions created thereby; namely, the fictions that...

... the check remains outstanding (it isn't), and
... I have a receivable for 150 (the reality is that I'm owed 50).

I viewed the situation as tantamount to (1) the check cleared for 100; and (2) the bank improperly deducted another 50 from the account, not unlike an erroneous service charge which the bank will refund.

Nevertheless, any differences in the approaches wash out as soon as the bank corrects its error. Your thoughts?

seka · Aug 20, 2009, 07:44 AM

Originally Posted by rehmanvohra

I prefer this approach and in the meantime, I would request the bank to correct the error. When the error is corrected by the bank, both the items will be removed from the reconciliation statement.

In some countries, the bank returns the paid checks to their customers. In this case, it is easy to check who actually made the error so that necessary corrections can be made.

Don't you think this may be misleading to say you have some much unpresented cheques (100) when in fact, there is only an error of 50?

seka · Aug 20, 2009, 07:55 AM

May, I know if your answeres are support by any Standard accountantancy practice or documents. I need some reference

rehmanvohra · Aug 20, 2009, 11:21 AM

Originally Posted by seka

May, I know if your answeres are support by any Standard accountantancy practice or documents. I need some reference

I am sure there is no such standard developed by the IASB in the UK or FASB in the USA. All we have to do is to present the facts as they are. If you were to read my post which you have quoted, I had endorsed your approach. It is you who should have mentioned the "standard accountancy practice" and not me.

When there is an error it is the duty of the accountant to make the records straight by investigating the error. Until the error is discovered and corrected, what is the best approach that should have been taken?

As regards the return of paid checks by the banks all you have to do is to refer an authentic text book by authros such as Meigs, Kieso, Chasteen, etc.

You may also wish to refer the following website:
[URL="http://principlesofaccounting.com"[/URL]

morgaine300 · Aug 20, 2009, 05:54 PM

Oh, this is rich.

My answer is coming from the point of view of someone who has actually had to do this very type of thing in real life in 20 years of doing accounting...

First, there is a difference between what you may record in your check register, which is an internal record, and what may be recorded in your official books. When you're speaking of making entries, you're speaking of what you are recording into your books and not what is being recorded into the check register.

As for the check register:
If you can manage to remember there's $50 less than what it says, you don't really have to do anything to it. Get the bank to straighten out the problem and it'll clear itself up on its own. It will be on the bank reconciliation on the bank's side of it in order to agree with your side of it. If the error is still there when you do the next bank rec, it will remain there. If they have straightened up the problem by then, then it will not be included in the next bank rec and everything will match itself and be fine and hunky dorry. There shouldn't be a lot of difficult in getting the bank to correct the error. (If you're going to forget about that $50, sure, remove it out of the account, reference it as a "bank error" and then add it back in when they do.)

As for the books...
If this error is not going to cross over the end of the accounting year, I don't think it matters one iota if you even book it at all. The important thing is what shows up on your financial statements. Since it's probably going to wash out in a fairly short period, it's not imperative that it even be recorded at all.

Two caveats:
If it's going to cross over the end of an accounting period and you want to make sure everything is correct, then I would take ArcSine's approach. The check has actually cleared. But the bank owes you $50 back for having removed too much. That doesn't change what the check actually is. And sticking it into your normal receivables is fine, cause it's just not material enough to get that hyper over.

The other caveat is that if it's going to just confuse people to not book it, or if the manager would have a fit, or something like that, then book it, again as ArcSine outlined.

Coming from doing this kind of things for years and watching banks make errors such as this, I have to say you are making an awful big deal out of nothing. I mean, we're now involving support of standard accounting practices and authentic textbook references for a lousy $50 that's going to wash out when the bank corrects it?

morgaine300 · Aug 20, 2009, 06:09 PM

Seka, I actually just noticed the title of your thread is about the bank reconciliation itself. I wondered if that's all you wanted to know: how to deal with it on the bank rec. Here's how:

The check cleared. Mark is as such. It's not outstanding. It's represented correctly on the company's side. You will adjust the $50 on the bank's portion of the bank reconciliation. ADD it. That will put their balance back up where is should be in order to reconcile to your account. Keep in mind that a bank reconciliation is not the bank's records, it's not your check register, it's not your books. It's a piece of paper that is used to reconcile the two balances and make sure everything is OK, and to find mistakes such as this. So just ADD it to the bank's stated balance so it will reconcile. That's the purpose.

Then think of it like an "outstanding error." Don't change this bank rec. It stands as is.

When it's time for the next bank rec to be done, if the bank has taken care of the error, it just means it's cleared up and will no longer be on the bank rec. If they haven't cleared it up, you have to carry that adjustment to the next bank rec. When doing any bank rec, you should always be looking at what was the on the last one to make sure all those things have cleared up. When they haven't, they carry through to the next bank rec.