Best Practices for Month End Bank and Subledger Reconciliations

Best Practices for Month End Bank and Subledger Reconciliations

There are 4 steps to completing a month end review and bank reconciliation. Scroll to section 5 for Tips to troubleshoot differences.

1. Complete the bank reconciliation report in Xero. 

2. Run the Subledger report in Loft.  

3. Run a Balance Sheet report in Xero making note of the balance on the liability account. 

4. Check that the Subledger total = liability account total and that the bank balance (prior to outstanding or unreconciled items) equals the same number. 

5. Tips for troubleshooting differences between the bank balance and liabilities.

Remember - when the transaction is fully closed there should be no funds held in the liability accounts :) 

  1. Bank Reconciliations in Xero

Xero makes use of thousands of bank feeds to make the reconciliation process easier. Loft will generate and post journal entries for your Real Estate accounting activity so your Escrow and Commission Accounts should be very easy to reconcile. You should not have to post any manual journals if you are correctly posting entries to your transactions in Loft. 

Once you have completed a bank reconciliation for the month you can click on the three dots and select Reconciliation Report. I'm going to use Dec 31st as my example. 

Change the date to the last day of the month you are reporting for and note the Balance in Xero. This example has no outstanding payments or receipts so the statement balance equals the book balance. 

2. Run the subledger in Loft

Under the Reports menu scroll down to Subledger, select the bank account you're reconciling and the date of the reconciliation. If you'd like to keep a record of this you can print this page to PDF. 


3. Pull a Balance sheet report and compare the bank balance and liability balance. 


4. Ensure that the liability accounts balance to the subledger account. Then again compare that to the book balance of the bank reconciliation report.  

5. Tips for Troubleshooting:
​
A. When the Subledger and Liability balance but the bank balance doesn't match.

If the subledger matches the balance in the liability account it means that all items posted in Loft in the period were posted to the liability account correctly. Often we will see timing issues result in differences between the bank balance. Look for payouts that were posted on the last day of the period you are reconciling. If you post a payout on December 31st the subledger and liability accounts will reflect that but if you post a payment the following day, January 1st, the bank balance will be higher than both the liability and the subldger by that amount. 


If you cut checks on the bills to be paid you can quickly review those payments made after the reconciliation date. If that doesn't catch the difference you can analyze all the ins and outs from the liability account by opening the account transactions for the period and compare that to the ins and outs from the bank account. 


B. Tips for subledger accounts out of balance with the liability Account. 

If your liability accounts are not lining up with the subledger you can export all the transactions from your liability account by clicking on the account name from the Balance sheet. This is a record of all items posted in and out of the liability account which should ALL come from Loft. Look for items that have not been posted from Loft by comparing the description of items.  

There should be no manually created transactions in these accounts. 

If no transactions pop out then you can simply compare using deal numbers and descriptions. All credits should be offset with debits to the liability account upon paying out an agent. 

Download the subledger for the last date that it was reconciled. You now have a list of all deals that are holding funds. You can then download or just review the transactions from the Account Transaction report for the month in Xero. All deposits being held have a credit balance so any funds released from the account should see an offsetting debit to reduce the balance for the deal to $0. Unfortunately, if there were any manual entries, bills voided or removed from Xero it may take reviewing each deal one at a time to ensure Loft and Xero are holding the same information. 

If you are audited annually it is a good idea to have a managing Broker sign off or initial the Reconciliation report once you've confirmed that the subledger is a match. 

Happy Reconciling :) 



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