Clearing old items from a school's bank reconciliation
Why old unexplained items keep reappearing on a school's bank reconciliation, how to trace them to the month they began, and how to clear them properly.
By Achekam · · 4 min read · For Education businesses in South Africa, Nigeria, Kenya
Open the bank reconciliation at some schools and you will find the same lines every month: a deposit from two years ago marked "unidentified", a cheque from a previous bursar's time that was never presented, a small difference labelled "to be investigated". Each month the new bursar copies them forward, because nobody remembers where they came from and removing them feels risky.
Those lines are not harmless. They hide whether this month's reconciliation actually balances, they may conceal a parent's payment sitting unallocated while the family receives arrears letters, and an auditor will ask about every one. Clearing them takes some patient detective work, done once and done properly.
How a reconciling item becomes old
AccountingTools describes the bank reconciliation process as comparing the internal and bank records for a bank account, and adjusting the internal records to bring the two into line, so that the recorded cash balance is accurate. The key word is "adjusting". A reconciling item is supposed to be temporary: a deposit in transit, a payment not yet cleared. Once it has been understood, the books are corrected or the item clears on the bank statement.
An item becomes old when that second step never happens. Common school examples:
- an EFT from a parent with no usable reference, never allocated to a family;
- a refund paid from the bank but never recorded in the books;
- a bank charge or interest line never posted;
- a cheque written to a supplier that was lost and never banked;
- a payment captured twice, or not at all, during a busy enrolment period.
Go back to the month it started
AccountingTools advises that if an undocumented difference remains in a bank reconciliation, the accountant should go back to earlier periods' reconciliations to see whether the variance arose in a prior period. It adds that prior-period reconciling items strongly indicate that earlier reconciliations were not investigated in enough detail.
So the first job is archaeology. For each old item:
- Find the earliest reconciliation where it appears.
- Pull that month's bank statement and the books for the same period.
- Identify the transaction on the statement or in the books that the item relates to.
- Note what it was, and what should have happened to it.
AccountingTools' guide to the bank reconciliation process walks through each step of a reconciliation and how to treat differences that remain.
Deposits nobody can identify
Unidentified deposits are a frequent old item at a school, and an important one, because each may well be a family's fee payment. Tracing them:
- ask the bank for the depositor's details on the original transaction;
- compare the amount and date with families whose accounts show arrears from around that time;
- check whether a parent queried a payment that "never reflected" in that period;
- look at the reference again: a learner's first name, a class or an ID number may be in it.
Once identified, the payment belongs against that family's account, which may change their arrears and the statements they have been receiving. A deposit that genuinely cannot be traced should be dealt with on the advice of the school's accountant, not written to income on a whim. The wider problem of unidentified money is discussed in untraceable bank deposits.
Why a small difference deserves a look
It is tempting to post a small unexplained difference to sundry expenses and move on. AccountingTools generally does not recommend simply booking a small unexplained difference, because even a slight variance could indicate a major problem. A small net figure can be the result of two large errors that nearly cancel out, such as a missing fee receipt and a duplicated supplier payment.
Investigate first. Only when the cause is understood should anything be posted, and then to the account the cause points to.
Correcting with a journal until nothing is left unexplained
When the cause of each item is known, correct the books, not the reconciliation. In Achekam:
- A business can post manual journals. An unbalanced journal, or one dated in a closed month, is refused, and a posted journal is corrected only by a reversal, so the correction leaves its own trail.
- Bank lines are matched by suggestion and a person accepts each match. A bank line that never reached the books becomes a suggested journal for a person to approve, which suits the unposted bank charges and interest that can lie behind old items. A reconciliation completes only when the difference is nil or every leftover line carries an explanation.
Because closed months refuse postings, corrections of old items normally go into the current open month, with a narration that explains which old item they clear. Months can be soft-closed, hard-closed and locked, and reopening a hard close needs a second approver, so a past period cannot be quietly reopened to hide a correction.
Stopping new old items
AccountingTools states that bank reconciliations should be performed at least monthly, typically when the bank statement is received, and more often, weekly or even daily, for organisations with high transaction volumes, significant cash balances or elevated fraud risk. A school at the start of term, with a rush of fee payments arriving, may justify weekly reconciliation in those weeks.
Achekam's month-end close helps here: before a month is closed, the screen checks the ledger balances and that no posting suggestions, unposted bills or unmatched bank lines are waiting. Treat a month that cannot close cleanly as a signal to resolve the unmatched lines now, while the bursary still remembers them. How often to reconcile is covered in more depth in how often to reconcile the bank, and allocating part payments correctly in fee instalments and part payments.
Pick the oldest item on this month's reconciliation, trace it to its first appearance this week, and clear one item at a time until the list is gone.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
