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Why bother with unpresented cheques for bank rec
Londina
Experienced MentorMAAT, AAT Licensed Accountant Posts: 814
Can't wait cheques to be phased out, as I'm finding quite annoying to do a bank rec and include the unpresented cheques....I prefer to see in the final accounts the bank balance as per bank statement, not a "fake" bank balance and also on creditors!
I also discovered that some clients too prefer this way :-)
I also discovered that some clients too prefer this way :-)
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So... what you are saying is that you should NOT show on your balance sheet the monies recived from a DRAGON, who sent your compny a cheque of £100,000 that you have just deposited on the last day of your yearly accounting period.
Your balance sheet as at year end, will show an overdraft of £60,000 instead of showing a true possition of a positive balance of £40,000 as a current asset, and a liability of £100,000 to a DRAGON
do you thik this meets the requirement of IAS8?
Maybe the IAS's doen't really matter, so long as we can can do the work to the best of our ability and the interested parties in our company's finacial statements should adopt to our prefered method of showing the finacial informtion.
well, in this particular case I would put the cheque in, since it's a lot of cash from a Dragon ;-)
However what about several cheques to suppliers? Do I need to include those? I'm wondering this because in a previous job I used to write lots of cheques than at the end of the day they weren't sent to the suppliers for months and they were actually sitting in my drawer....as a result the creditor balance was always little when in reality it wasn't!!
Do IAS8 allow this?
By putting the correct balance in the bank you have followed the transaction through, the cheques have been written so therefore must have been taken out of the bank and shown as unpresented cheques.
If we're not going to bother with uncleared items in the bank, let's not bother with prepayments or accruals or depreciation either....
In the case of cheques sitting in the drawer, I would argue if they weren't issued to the supplier on the date of the cheque (or very shortly thereafter) they should not be included as these also distort the picture in an inaccurate way.
I realise that the 'cheque is in the drawer' practice is not limited just to companies like this, but yes, it's a pesky thing to deal with. It might be best to cover your back by having a section in the bank rec specifically for 'cheques in the drawer' and that way everyone can see the true position.
This would deal with the "cheque in a drawer" issue.
Some Reasons for this cheque:
> Sometimes the clerk raise and post in the system but the directors dont sign them.
> or the directors dont retrun the check to post. He/she holds them...
> or the Directors sign the cheque and ask the clerk hold it until futher instructions.
> Finally Cheques get lost in Post
(But most of the time i faced directors related issues)
The cheques should be dated with the date they are sent out, and then the unpresented cheques are really cheques in transit.
Our auditors instructed us to do it this way. Although in reality its somewhere between this and being sat in a drawer...
How can you do that? then the cheques will not be in date order!
The reason of my cheques in the drawer is this one suggested my Moneysavingbank, at the end of every month I prepared all the due cheques, however the director decides later which one to send and which one to keep for a while...
My system is the one told to us by the auditors, but their system is based on everything being a lot more simple and straightforward than things often are!
1, we identify what needs paying according to the system agreed by the directors
2, cheque run
3, director signs them
4, sent out same day
(But this assumes the director will always agree to what the system says needs paying, which they should in theory, but...)
Hey,
PGM using different system. In that system, They print only what the director agrees. But when we manually run Cheques, We face this problem with directors.
Ta
If I want to know if the bank balance in the software is correct, I check if it matches the bank statement balance, that's it, at first instance I get my answer, instead going through every single cheque, check which one has been posted and which one not, check the bank rec and delete the ones presented afterwards in the bank, no, no...too much time wasted when it's not really necessary.
As said, the reconciliation is between the cash book and the bank statements. The cash book should record payments and receipts as they occur, therefore there will always be a time lag between the cas book and bank statement, ie delays in BACS tape runs, the clearing process on receipts and cheques not being presented for payment for a number of reasons.
Given that the whole point of the reconciliation is to identify errors and fraud, all the timing differences have to be identified before the errors can be identified for investigation. To not take account unpresented ceques in a bank reconciliation statement would make the whole process meaningless and worthless. Without a meaningful bank reconcilliation process as Head of Finance, I would feel very uncomfortable and exposed, I would also anticipate a qualified audit report on my accounts.
The balance sheet records the cas book balance, the real cash balance, not the bank statement total which may be incomplete.
In the case of cheques in the drawer, that's a separate issue.
But in the case of cheques that have left your hands, that are either in the post, or with the cheque's recipient ready to be banked, they must be included on the bank rec as they will happen without any further action from you, you have already 'released' that transaction into the world, so to speak.
If my bank balance says I have £200, I think I can take £200 out of the cashpoint and I won't go overdrawn. If there is a cheque for £50 in the post that's going to clear in 2 days, I need to know that my true balance is only £150, otherwise I might go overdrawn. That's just one practical example of why it is very important.
I send out an Euro cheque for around 80,000 and put it in the weekly cash flow forecast. The next week it hadn't been cleared yet, but I didn't include it in the cash flow forecast again, as it would fall under timing differences as far as I knew.
My manager then happily sweeped the Euro account and left only enough for the weekly cash flow and a bit reserve for just in case situations and then supplier tried to cash the cheque. Both my manager and me were not happy...
Surely that method will only work if there are no unpresented cheques?
Monsoon I understand your point, however bookkeeping speaking, it's such a long process and wondering if it's really that necessary, considering all sort of problems that can happen
Exactly, if I don't post any unpresented cheques, I will always know the correct bank balance in the software.
The cash book is the prime record within the organisation, it is maintained by the organisation under its internal control procedures. It should be upto date and accurate and is part of the double entry system. The cash book is a prime record of assets and therefore, it is the cash book balance that has to appear in the balance sheet (otherwise the balance sheet won't balance).
The point of the bank reconciliation statement is to account for any differences between what the bank think the organisations cash position is (the bank statements) and what the organisation knows the cash position is (the cash book). The most common difference is unpresented cheques, so they must be listed as part of the process. As a by product, it prodes a ready record to show cheques going stale that need writing back into the accounts.
The bank rec procedure is a essential process for establishing completeness of records and for protecting cash. It will always be subject to audit review so must be carried out fully and properly.
I'd be more concerned with the problems that can happen if you don't account for items already committed to, but not yet cleared.
I've explained as best I can - am happy to agree to disagree, as long as you carry on doing bank recs properly - the profession would have done away with them years ago if they weren't necessary
When you get authority to post the cheques in the drawer out to say, Fred, Joe and Clive you duly post the cheques.
How without loging un presented items do you know the correct balance at the bank or if Joe's cheque got lost in the post or Clive forgot to pay his in or if Fred being a bit devious altered the cheque and it cashed for an amount different to that what was written by the company?
Even If the cheques are sitting in a drawer noting the unpresented items is essential. These are then "ticked off" as they present. It also doubles up as a list to ensure that no one has stolen any of the cheques in the drawer or sent any off by mistake.
Your balance at the bank is only the balance of cleared items subject to checking by you. It does not guarentee that after all items have cleared that will be the actual balance available to draw on.
When I worked in Health, bank balances were cleared daily to accounts with higher interest and only what was needed brought back into the main account each day. Uncleared cheques were an important part of that calculation.