Q.I have a few accounts where the cash does not reconcile with the broker. Is it worth spending the time to reconcile them? Or should I just enter a journal to adjust the positions? A.The best solution is to keep your accounts reconciled daily with a professional like me. However when I inherit data with cash problems, here is how I triage the situation:
How long has it been since the accounts reconciled?
IF the accounts have several years worth of data and the cash positions have never reconciled, the chance of finding the error in a reasonable amount of time is slim. Consider adjusting the position.
IF the accounts reconciled recently and/or you can pinpoint the last day they reconciled, finding the problem should be relatively easy. Try to solve it.
Can you identify a pattern?
Spend some time on one account. Pick the account you think is easiest to solve (for instance the one with the least number of transactions). Once you identify the issue in the one account (for example a missing or duplicate transaction), check the next account for the same problem.
If the data has been otherwise well-maintained, odds are good that the same problem affects all the positions.
How large is the discrepancy?
If the cash is off by a small amount (say less than $1.00) or the $amount is small in comparison to the total account value AND it’s been years since the accounts reconciled AND there is no identifiable pattern, then it’s probably not worth the time required to solve each case.
Depending on the time available, the approaching deadlines, and the cost of staff time, consider adding the appropriate transaction to reconcile the cash.
If you must make an adjustment:
Do NOT use a journal entry to reconcile the cash balances. Journals adversely affect performance.
Skim through the transaction history. If you see many deposits/withdrawals, then that is most likely the culprit and use a deposit/withdrawal to reconcile the balance.
If the account is tax deferred (IRA, ROTH, etc) or some other type where cash flows have tax consequences, you should probably use an income/expense to balance the cash.
In either case, make sure you put a note in the comment field to identify your adjustment. You need enough text to explain this transaction in the future — “adjustment for missing transactions” or “reconciling cash balance” for example.