Why monthly reconciliations are critical for vacation rental accounting
Discrepancies between a bank account and a vacation rental accounting system occur more often than you might think. Those discrepancies often go unnoticed, resulting in mismatched account balances and inaccurate records. The longer it goes on, the more difficult it can be to correct.
Performing a bank reconciliation verifies that the cash balance in your trust accounting system matches the balance in your trust bank account. If you do this monthly, you’ll be more able to easily identify and correct any discrepancies that arise.
Now that you know why reconciliations are critical to your business, here are 5 simple steps on how to complete them, along with what to do with uncleared entries.
1. Get Your Bank Statement
2. Group Deposits
Here’s where you use the transaction data from the step above.
Identify deposits that were made all at once, such as multiple checks, credit card charges or refunds, and channel funds. Group these together in your trust accounting software. The deposit amount to your bank account should then match a deposit in your accounting software cash account.
Performing this step on a regular basis makes the monthly reconciliation process go a little faster. How often this should be performed will depend on the number of transactions to your bank account.
3. Begin Reconciling
After you have grouped your deposits, you can begin the reconciliation work.
When you begin your reconciliation, your trust accounting software should allow you to enter an end date and ending balance. If you are doing a monthly reconciliation, these entries will match what is on your bank statement.
At a minimum, reconciliations should be completed every month, but they can be done more often depending on your business practices and size.
4. Complete Reconciliation
5. Review Uncleared Transactions
After you have reconciled, you should have entries that are considered Uncleared Transactions. This means that the payment or refund has been entered into your trust accounting software but has not yet hit your bank account. While uncleared transactions are normal, they should be reviewed monthly to make sure they can be accounted for.
Here are guidelines to follow when it comes to uncleared transactions:
- Deposits (payments or refunds) – Deposits include credit card charges, refunds, or cash/checks taken to the bank. These should clear your bank account (show as deposited) within 3 business days.
- Checks – Checks that are written to stakeholders should be cashed within 3 months. If they are not, it is best practice to reach out to the receiver to make sure they got the check, and if needed, re-issue it.
- Electronic Transfers – Normally these will occur the same or next day.
- Other payment types – If you enter other payment types to cover an entry on a reservation, such as the Manager covering part of the cleaning fee for a dirty BBQ, an adjustment should be made in the accounting system to offset this from the responsible stakeholder. These should clear the same month they are entered.
If any entries on your uncleared transactions fall outside these time frames, they should be reviewed.