Bank reconciliation is the monthly comparison of the company's cash book with its bank statement, and an unreconciled difference means a recorded or unrecorded transaction that needs explaining. In Hong Kong, FPS payments, bank transfers, cheques and card settlements all appear differently on the statement, so match each line to a document before you close the month.
A reconciliation proves that the cash balance in the books is the balance the bank holds, adjusted for items still in transit. It catches duplicate payments, unrecorded bank charges, customer payments applied to the wrong invoice and, occasionally, fraud. Every statutory audit starts with the bank balance, because it is the most independent evidence available: the auditor will write to the bank for a confirmation and compare it to your books.
Companies that skip monthly reconciliation usually pay for it at the year-end. A year's worth of unmatched lines has to be investigated at the same time as accruals, depreciation and tax provisions, and the people who knew what a payment was for may have left or forgotten.
The records also underpin tax. The Inland Revenue Department expects a company to keep books explaining its transactions for seven years, and an unexplained credit on a bank statement can be treated as income unless the company shows otherwise.
Download the statement for each account as soon as the month closes. Take the opening balance from the prior month's reconciled balance, then tick every line against a ledger entry. Receipts match to invoices or other income entries, payments to supplier bills, payroll, MPF, tax payments or director transactions. Anything left unmatched on either side is a reconciling item.
The common reconciling items are cheques written but not yet cleared, deposits made but not yet credited, bank charges not yet booked, interest, foreign exchange differences on overseas transfers and timing differences at the month-end. List each with its date and the person who will clear it. Banks commonly treat a cheque as stale after about six months, so old uncleared cheques should be investigated and either re-issued or reversed.
Finish with three lines: balance per bank statement, adjusted for reconciling items, equals balance per books. Sign the reconciliation, date it and have a second person review it. That signature trail is exactly what an auditor looks for.
Here is a worked example. The statement shows HK$512,400. Add a deposit of HK$38,000 made on the last day and not yet credited, and subtract two cheques of HK$21,500 and HK$9,800 that have not cleared: the adjusted bank balance is HK$519,100. The books show HK$519,620, so HK$520 is missing from them, which turns out to be an overseas transfer fee of HK$400 and a monthly account fee of HK$120. Booking those two charges brings the books to HK$519,100 and the reconciliation closes with no difference.
FPS credits show the payer's name and amount, plus whatever reference the payer typed, and they arrive in real time at any hour. Payments sometimes come from a different person than the customer, such as a director paying personally, so keep a note of who paid.
Bank transfers from overseas often arrive net of intermediary bank charges, so the amount received is less than the invoice. Decide in advance whether the customer or the company bears those charges, and book the difference to bank charges with a note, rather than leaving the invoice partially paid forever.
Cheques are listed by cheque number and may be paid, returned or stopped. Card settlements arrive in batches, net of fees, so you need the merchant statement to see which sales they cover. For payments in foreign currency, record the rate used and the Hong Kong dollar equivalent at the date of transaction, as set by your accounting policy.
Multi-currency accounts need one reconciliation each, in the account's own currency, plus a note of the Hong Kong dollar equivalent at the closing rate used in the accounts. Because the Hong Kong dollar is linked to the US dollar within a narrow band, differences on US dollar balances are small, but renminbi and other currencies can move enough to matter.
Separate duties where possible. The person who prepares payments should not be the person who approves them, and neither should do the reconciliation alone. In a very small team, a director can review the reconciliation and sign it off monthly.
Keep access tidy: when staff leave, remove their online banking access the same day, and review the list of authorised signatories at least once a year. Check unusual items such as round-sum payments to individuals, repeated small transfers just under an approval limit and payments to new payees.
Never leave a suspense account to grow. If you cannot identify a receipt within a month, ask the payer or the bank, record it in a suspense line with a note, and clear it before year-end.
Restrict who can set up new payees and who can release large transfers. Ask the bank to send alerts for outgoing payments above a threshold you set, and review the bank's list of authorised users whenever a director or finance officer changes.
4invoices keeps PDF invoices in an invoice archive, so you can look up the number, amount and date of any sales invoice when matching a receipt. It does not import bank statements and does not match payments automatically; the matching is done by you in your books.
4notify can send an SMS or e-mail that you write, for instance a payment reminder for an invoice that your reconciliation shows is still open, or a note to the manager who must sign off the month. It is triggered by you, not by bank data.
Hours each week spent ticking statements by hand, while unmatched items pile up.
Reconcile bank, FPS and cheque receipts against your invoice archive using invoice numbers, in your bank’s tools or your accountant’s software. 4invoices does not import statements or match payments.
Debtor follow-up is inconsistent — some customers are chased three times, others never.
Keep your own list of overdue invoices and send reminders by SMS or e-mail from 4notify when you decide to. Reminders are written by you and are not sent on a schedule.
At least monthly for every account, including foreign-currency and dormant accounts that still hold a balance. A monthly routine keeps unmatched items fresh enough to investigate, and gives the auditor a signed trail. Companies with high transaction volumes often reconcile weekly. Reconciling only at year-end usually leads to a long list of unexplained items. Reconcile before preparing any payment run, so that cleared and uncleared cheques are known.
Cheques written but not yet cleared, deposits not yet credited, bank charges or interest not yet booked, foreign exchange differences on overseas transfers and month-end timing differences. Each should be listed with a date and an owner. Items that stay open for months, especially old cheques, need to be investigated and either reissued or reversed.
Intermediary banks often deduct charges, so the received amount is below the invoice. Agree in the contract who bears them. If the company absorbs the difference, book it to bank charges with a note, so the invoice shows as fully paid; if the customer should have paid it, ask for the balance. Do not leave small differences hanging.
The auditor sends a confirmation request to the bank and compares the confirmed balance with your reconciliation. Items on the reconciliation are tested against cut-off dates and later statements. A signed, dated and reviewed reconciliation for the year-end month, with every reconciling item explained, shortens the audit considerably. Cheques and receipts dated near year-end are traced to the following month's statement to confirm cut-off.
PDF invoices and SMS or e-mail from your account; bank matching is done outside the system.
