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Banks resolve errors using two methods: Reversal and Adjustment. Typically, the bank enters error corrections and adjustments as miscellaneous transactions, and often, they use the same bank transaction codes you set up for miscellaneous receipts or payments to identify the statement lines that are generated for error corrections. These two cases are described in this section, using the following example:

A check was generated for $100.00, but the bank recorded this payment as $10.00 by mistake. On your bank statement, you will see an entry of $10.00 payment

Trx Number	Line Number	Amount	Remarks
27	10	$10.00	Error (should be $100.00)

Reversal Method: The bank reverses the whole error transaction amount so that the error entry and the reversal entry net out to zero. Then, the bank makes another transaction entry for the correct transaction amount. In this example, a reversal entry of $10.00- is created to offset the original error entry, and a new correction entry is created of $100.00.

Trx Number	Line Number	Amount	Remarks
27	10	$10.00	Error
27	20	$10.00-	Reversal Entry
27	30	$100.00	New Correction Entry

With the reversal method, the error and correction statement lines are match to one another. The correct transaction entry (line 30 above) is then matched to the actual transaction.

Adjustment Method: The bank simply creates a new transaction entry to make up for the difference between the original transaction amount and the error entry. In this example, the bank generates a new adjustment entry of $90.00, which is the difference between the original error amount of $10.00 and the correct amount of $100.00.

Trx Number	Line Number	Amount	Remarks
27	10	$10.00	Error
27	20	$90.00	Adjustment Entry

Regardless of which method the bank and you choose to use, and of whether you reconcile automatically or manually, Cash Management allows you to match these statement lines correctly and to provide the information on how the statement lines are reconciled to give you a good audit trail.

AutoReconciliation Matching

• Reversal Method: Tries to match the reversal entry to a statement line that contains the same transaction number and opposite transaction type. For example, if the reversal entry is a miscellaneous receipt, then the program matches to a payment or miscellaneous payment. If the amounts net out to zero, then the program assumes there is a match and reconciles the statement lines.

• Adjustment Method: Tries to find both a statement line and a transaction to match to the adjustment entry. The statement line must contain the same transaction number as the adjustment line. However, the statement line can be a payment, receipt, miscellaneous payment, or miscellaneous receipt, as long as the amount netted out is within the tolerance of the original transaction.

Manual Reconciliation Matching

In the reversal method example above, you reconcile line 20 with line 10. In the adjustment method example, you reconcile line 20 with the original transaction and line 10.

If you have already reconciled the error statement line to a transaction, you must first unreconcile the error statement line before attempting to reconcile it with the correction entry.

Sometimes, a bank uses one correction entry to correct multiple error statement lines. You can manually reconcile between multiple statement lines. Consider the following example:

Trx Number	Line Number	Transaction Type	Amount	Remarks
27	10	Payment	$100.00	Error
27	20	Misc. Receipt	$10.00	First Correction Entry (Error)
27	30	Misc. Receipt	$90.00	Second Correction Entry

In this example, line 30 uses the reversal method to correct errors made in lines 10 and 20. It may be that line 20 was supposed to correct line 10, but it turns out to be another error. In this case, you should go to either line 20 or line 30 and reconcile the other two statement lines to the miscellaneous receipt line selected.

See Also

Reconciliation Tolerances

Reconciling Bank Statements Manually

Overview of Setting Up

Bank Transaction Codes