Version 1.0
Prepared by: @Lorraine Sebata
Approved by: @Name
Reviewed date: 2024-07-24
Next review date: 2025-07-24
This Standard Operating Procedure (SOP) for Undeposited Account Reconciliation is established to ensure the accurate and timely reconciliation of all funds received by the company that have not yet been deposited into the bank. Its purpose is to minimize discrepancies, prevent cash handling errors, and ensure that all receipts are promptly and correctly recorded and deposited, thereby maintaining the integrity of financial records and optimizing cash flow management.
This SOP applies to all Accounting Team members responsible for handling cash and cheque receipts, recording deposits, and performing reconciliations of the Undeposited Funds account within Easyterms. This includes all daily, weekly, or periodic reconciliation activities.
Accounting Team Member: Primarily responsible for collecting, recording, and preparing funds for deposit, as well as performing the reconciliation of the Undeposited Funds account.
Bank: Provides bank statements and deposit confirmations.
Management Team: Reviews and approves reconciliation reports and authorizes necessary adjustments.
5.1.1 Collect all cash, cheque, and other forms of payment received from clients or other sources.
5.1.2 Immediately record all receipts in the Accounting Software (Xero) by creating a 'Receive Money' transaction, ensuring the funds are initially posted to the 'Undeposited Funds' account.
5.1.3 Ensure accurate details are entered, including client name, amount, date of receipt, and payment method.
5.1.4 Prepare a physical 'Deposit Slip' or digital record summarizing all funds intended for a single bank deposit.
5.2.1 Bundle all physical cash and cheques corresponding to the 'Deposit Slip'.
5.2.2 Make the physical deposit at the bank or process digital deposits as per the Cash Management Policy.
5.2.3 In Xero, create a 'Bank Deposit' transaction, selecting all individual 'Receive Money' transactions that comprise the deposit. Ensure the total of the selected transactions matches the actual bank deposit amount. This moves the funds from 'Undeposited Funds' to the respective bank account in Xero.
5.3.1 Log into the Accounting Software (Xero).
5.3.2 Navigate to the 'Accounting' tab and select 'Bank Accounts'.
5.3.3 Select the relevant bank account and go to the 'Reconcile' tab.
5.3.4 Simultaneously, access the 'Undeposited Funds' account ledger or report in Xero to view all un-reconciled transactions.
5.4.1 Compare the bank statement/feed with the transactions recorded in the bank account in Xero.
5.4.2 Focus specifically on matching the 'Bank Deposit' transactions recorded in Xero with the actual deposits at hand.
5.4.3 For any discrepancies between the 'Undeposited Funds' account in Xero and actual bank deposits, investigate the cause. Common discrepancies include:
Receipts recorded in Xero but not yet deposited (outstanding deposits).
Differences in deposit amounts due to errors or bank charges.
5.4.4 For any 'Receive Money' transactions still sitting in the 'Undeposited Funds' account that should have been part of a deposit, identify why they were not included or matched.
5.5.1 For outstanding deposits, ensure they are genuinely in transit and follow up with the bank if necessary.
5.5.2 For deposits on the bank statement not in Xero, investigate the source of the funds and record the 'Receive Money' and 'Bank Deposit' transactions accordingly.
5.5.3 For amount discrepancies, identify the cause (e.g., bank error, incorrect entry) and make necessary adjustments in Xero with proper documentation and approval.
5.6.1 Once all transactions are matched and discrepancies resolved, the 'Undeposited Funds' account balance in Xero should reflect only genuinely outstanding receipts that are yet to be deposited. Ideally, this account should be zero or near zero at the end of each reconciliation period.
5.7.1 File the bank statements, deposit slips, and all supporting documentation in a designated digital or physical archive.
5.7.2 Ensure all records are retained as per the Financial Reporting Policy for audit purposes.
5.7.3 Conduct regular reconciliations (e.g., daily or weekly, depending on volume) to ensure continuous accuracy and compliance.
Bank Statements/Bank Feeds
Deposit Slips (physical or digital confirmations)
'Receive Money' Transactions (from Xero)
'Bank Deposit' Transactions (from Xero)
Undeposited Funds Account Ledger/Report (from Xero)
Reconciliation Working Papers/Reports
All Accounting Team members responsible for handling receipts and performing Undeposited Account Reconciliation will receive mandatory training on this SOP and related policies annually or upon significant revisions.
This SOP will be reviewed annually by the Accounting and Finance Departments to ensure its continued effectiveness, compliance with financial policies, and alignment with business objectives.