Bank Reconciliation for an Apartment Building: Operating, Deposit and Reserve Accounts Every Month

What is bank reconciliation for an apartment building?

Bank reconciliation is the monthly check that every line on an apartment building's bank statement is in its books, and that the 2 ending balances agree once uncleared items are listed.

The bank statement is the one record nobody in the building wrote. Reconciling means laying it beside the books, line by line, and proving the 2 agree. A line on the statement that is not in the books is a missing entry. A line in the books that is not on the statement is either still clearing or wrong. When the list of uncleared items explains the whole difference, the account is reconciled.

A reconciled balance is what the cash line rests on in the monthly report package for an apartment building. The cash view starts from that balance, so the reconciliation comes first.

Why does an apartment building need 3 bank reconciliations a month?

Because a building holds 3 kinds of money: its own, its tenants' deposits, and its reserves. Each sits in its own account, and each is proved against a different list.

• The operating account holds the building's own money: rent in, bills and the loan payment out. At Birch Way it holds $71,000.
• The deposit account holds the tenants' money: their security deposits, owed back when they leave. At Birch Way it holds $35,250.
• The reserve account holds money the owner set aside for replacements. At Birch Way it holds $5,750.

One reconciliation of one account would prove the bank total and nothing about whose money it is. 3 reconciliations prove each pile. An association does the same with its operating and reserve accounts, covered in HOA bank reconciliation.

What must each apartment building bank account equal?

The operating account equals the cash in the books. The deposit account equals the deposit ledger, unit by unit. The reserve account equals the reserve balance in the books.

The second column proves the account against the bank. The third proves it against the building. The deposit account is right when it holds what 47 tenants paid, and the bank statement confirms the cash is there.

How do you reconcile an apartment building's bank account, step by step?

Get the statement. Tick each line against the books. List what has not cleared. Check that the adjusted bank balance equals the book balance. Then tie the account to its list.

1. 1Get the bank statement for the full month, from the first day to the last.
2. 2Tick every line on the statement against the books. Each deposit and each payment on the statement has one entry in the books, for the same amount.
3. 3List what is in the books and has not reached the bank: a check written and not yet cashed, a deposit made on the last day that clears next month.
4. 4Check that the bank's ending balance, adjusted for that list, equals the book balance. If it does, the account is reconciled.
5. 5Tie the account to its list: the deposit ledger, the reserve balance or the cash line. Save the reconciliation report and lock the month.

The 5 steps are the same for all 3 accounts. Only the list in step 5 changes. Each one ends in a reconciliation report, and the owner should receive all 3 reports with the monthly package. Reconciling is one part of the month-end close for an apartment building.

How do you reconcile an apartment building's security deposit account?

Reconcile it to its statement, then compare the balance with the deposit ledger. In the example, 47 units at $750 is $35,250, and the account must hold exactly that.

Run the 5 steps on the deposit account's statement. Then open the deposit ledger: one line per unit, with the tenant, the amount and the date it was received. Add the lines. At Birch Way, 47 rented units at $750 is $35,250, the ledger total is $35,250, and the deposit account holds $35,250.

Birch Way deposit tie-out, invented data

This is what people mean by a three-way reconciliation: the bank statement, the books and the per-unit list all show the same number. If the account holds more than the ledger, rent or a fee was paid into the wrong account. If it holds less, a deposit was spent. How the ledger is built, unit by unit, is in security deposit accounting for apartment buildings.

Where tenant deposits must be held is a legal question for your attorney.

How do you reconcile an apartment building's reserve account?

Reconcile it to its statement, then to the reserve balance in the books. Reserves and escrow that the lender holds are checked against the lender's statement instead.

The reserve account has 2 parts to check. The bank part is the account the owner keeps at the building's own bank: run the 5 steps on its statement, then compare the balance with the reserve balance in the books. At Birch Way both read $5,750.

The lender part is the money the lender holds: the tax and insurance escrow and the lender-held replacement reserve. That money never passes through the building's bank, so the bank statement cannot prove it. The lender's statement can. Each month the escrow and reserve lines in the books are set beside the balances on the lender statement, and the 2 must agree. Reserves that the lender holds are covered in replacement reserves on a multifamily loan.

What does bank reconciliation show about an apartment building's real cash?

3 reconciliations split $112,000 into $71,000 of the building's own cash, $35,250 of deposits and $5,750 of reserves. With $78,000 of bills due, real cash is -$7,000.

Add the 3 statements and the building has $112,000 in the bank. Reconcile them one by one and the figure splits into 3 piles, only 1 of which is the owner's to spend.

Birch Way, the bank total by account, invented data

Birch Way cash view, invented data

The short way to the same number: the operating account holds $71,000 and $78,000 of bills are due, so real cash is -$7,000. The building made money this month and is still short of cash, and only the 3 reconciliations show it.

What if an apartment building's books do not match the bank?

Find the difference line by line. The usual causes are an entry made twice, an entry missing, a wrong amount, or money paid into the wrong account.

• An entry made twice. The same rent payment or the same bill was recorded on 2 dates.
• An entry missing. A bank fee, an interest credit or an automatic payment is on the statement and not in the books.
• A wrong amount. A digit was swapped, or a payment was recorded at the invoice amount when the bank shows a different one.
• Money paid into the wrong account. A deposit landed in operating, or rent landed in the deposit account.

The difference tells you where to look. A difference that equals 1 rent points at the rent entries. A difference that equals 1 bill points at that bill. Here is the worked example at Birch Way.

Birch Way, a mismatch found and fixed, invented data

The difference was exactly 1 rent at $1,450, so the search started with the rent entries and found the same payment recorded on 2 dates. The duplicate came out, the books read $71,000, and the account tied to the cash line.