The Church Treasurer's Handbook. Robert Leach
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Bank statements
The bank issues a statement, usually monthly, listing all payments into and out of the account and showing a balance. Banks usually provide folders in which to keep statements. The statements should be immediately filed in the folder, with the latest statement on top.
The bank statement is needed to:
identify receipts and payments not already recorded
check that payments and receipts are in order, and question any which appear not to be
perform a bank reconciliation, explained below.
Bank statements often include items which you have not already recorded in your cash books. These items can be either payments or receipts. A church bank account will probably have many standing orders from donors. There may be regular payments from a bank account by standing order or direct debit, such as regular lease payments. Other items can include interest on the account and bank charges. All these items are usually picked up when performing the first part of the bank reconciliation.
Bank reconciliation
In your cash books, you record the amount of cash the church has in its bank account. This is after all the cheques have been issued and all the payments in have been cleared.
In terms of day-to-day funds, this is a theoretical figure as there is always a time lag between issuing a cheque and when the amount is taken from the account. The cheque may have to arrive by post, the person may not pay it in immediately, and then it takes a few days to clear. Many treasurers can be surprised at how long it takes some people to pay in cheques they issue. Some cheques never get paid in. Conversely, there can be a delay, usually much shorter, before payments into the bank are added to the account. The consequence of all this is that the balance shown on the bank statement is different, and usually higher, than the equivalent figure from your cash books.
To provide a check on the accounts, it is usual to perform a bank reconciliation for each statement you receive. This reconciles the closing balance on the bank statement with the figure you have from your cash books.
This principle is best understood by a simple example. Suppose you open an account on 1 January 2012 and make the following payments and receipts.
This simple account shows us that we paid £240 into the bank, and issued four cheques which total £151.97, so we have £88.03 in the bank. However, the bank statement looks rather different:
According to the cash book, you have £88.03 in the bank at the end of the month, but the bank says that you only have £83.95. The explanation is obvious: one payment and two cheques had not cleared. The bank reconciliation simply lists these items to check that the figures agree.
Some points to remember in a bank reconciliation:
you reconcile the bank statement to your cash book, not the other way round. It is your cash book that has the ‘correct’ figure for your purposes
you check off items in the cash book against their appearance on the bank statement, usually by putting a little tick against the figures on each
items on the bank statement which do not appear in your cash book are added to your cash book as receipts or payments. You then check off the items with little ticks. These can include standing orders paid in or out, bank charges paid out, and interest paid in
at this stage every item on the bank statement should have a little tick against it. You then subtract uncleared cheques and other payments, and add uncleared receipts.
In our example above, the bank reconciliation will look like this:
Note that the correct figure for our purposes is the cash book figure of £88.03. The bank reconciliation simply shows how the different figure on the bank statement is the equivalent of that cash book figure.
The process of performing a bank reconciliation is an essential discipline in checking that your cash book is correct, that all payments and receipts in your account have been recorded, that the bank statement is correct, and what cheques have yet to be cleared.
There are a few further points to note about bank reconciliations. The method above is fine for the first month of an account or when all cheques are cleared promptly. In other cases, going back months in a cash book can be tedious and lead to errors. It is therefore usual to tick only the cash book for the current month, and the previous bank reconciliation for all previous months. The bank reconciliation for the previous month lists all uncleared items, most of which have probably cleared in the current month. The items you add or subtract in the current month’s bank reconciliation are therefore the unticked items from the current month’s cash book and last month’s bank reconciliation.
Stale cheques
If a cheque is more than six months old, it has become a stale cheque. This means that the time for paying it in has expired. If the payee does try to pay it in, the bank will reject it (or at least, the bank should do). A stale cheque is shown as an uncleared cheque in the month it becomes six months old. In the following month, the cheque is written back in your cash book. It is shown in the payments section but as a negative payment, such as by putting brackets round the numbers, and is subtracted from the total. This entry and the original must be cross-referenced by contra sign to each other.
The fact that a cheque has gone stale does not mean that you no longer owe the money and can regard this non-payment as bunce. The treasurer should try to contact the payee and usually arrange for a replacement cheque to be issued. The payee may have lost the cheque, forgotten about it, or had it stolen. Don’t issue a replacement cheque until contact has been made with the payee. It is possible that the payee has moved, died, emigrated or simply disappeared.
Sometimes an item appears on a bank statement as both ‘paid in’ and ‘paid out’. This happens if you pay in a cheque which bounces but clears on re-presentation. Another example is where the bank imposes a charge which it then agrees to refund. If the same amount appears in each column of the bank statement for the same item, you tick each of them on the bank statement. The two entries are contras, as explained above.
Sometimes you may find that an item appears on the bank statement which should not. This is a rare occurrence, but it has been known for the banking system to clear items to or from the wrong account. It is also known for a crook to try to get money from your account. If you find any entry on the bank statement which you do not understand, you must contact the bank immediately. If there is evidence that the account is being fraudulently raided, the bank will have specific procedures to deal with the matter. If you have not authorized the payments, the bank is liable to refund the wrongful payments.
Sometimes you may find that an item appears on the bank statement for a different amount. For example, you may have recorded a cheque for £25.00 when the bank shows it as £35.00. Such cases are rare. If it does happen, you should first check that your cash book is correct and that you have not simply entered the wrong figure. If you are correct, for the bank reconciliation, the difference is added to or subtracted from the bank total. The matter should be raised with the bank.
Stolen or lost cheques
If a cheque book goes missing, you must report it to the bank immediately. Always assume that a missing cheque book is stolen until you find out otherwise. The bank will stop payments on the account until the matter is resolved. This can cause problems because an innocent payee can find that your cheque to him is dishonoured in the meantime. You should explain to the payee what has happened. If necessary, take the cheque back and possibly make payment in another way, such as by cash or from another bank