Your Three-Way Balance Explained
Objective:
This guide explains the three-way balance reconciliation used in Australian real estate businesses. It breaks down each section of the balance to help you understand the components and their significance.
In this Article, You Will Learn About:
Bank Balance
Cashbook Balance
Ledger Balance
What is a Three-Way Balance?
A three-way balance reconciliation ensures that three key financial records—Bank Balance, Cashbook Balance, and Ledger Balance—are in agreement. This method is critical for maintaining accuracy in financial reporting and compliance with trust accounting requirements.
Bank Balance
Overview: The Bank Balance represents the reconciled amount of money held in your bank account at a specific point in time.
Components:
Reconciled Bank Balance: The total amount currently in the bank account after all transactions have been accounted for.
Bank Balance as of Last Sync: The bank balance as per the most recent synchronization with your accounting software.
Unrepresented Deposits: These are deposits that have been recorded in the system but have not yet been credited to the bank account.
Unbanked Receipts: Payments received but not yet deposited into the bank.
Unpresented Cheques: Cheques issued but not yet cleared by the bank.
Adjustments: Any manual adjustments made to reconcile discrepancies.
Cashbook Balance
Overview: The Cashbook Balance reflects the total amount of money according to your internal records, often maintained in accounting software or ledgers.
Components:
Closing Cashbook Balance: The final balance recorded in the cashbook at the end of the accounting period.
Opening Balance: The balance at the beginning of the accounting period.
Receipts: The total money received during the period.
Reversed Receipts: Any receipts that were reversed or cancelled.
Payments: The total amount of money paid out during the period.
Reversed Payments: Any payments that were reversed or cancelled.
Ledger Balance
Overview: The Ledger Balance represents the detailed financial records, typically broken down into specific categories such as owner funds, supplier funds, booking funds, and business funds.
Components:
Closing Ledger Balance: The total balance at the end of the accounting period, representing the sum of all ledger accounts.
Owner Funds Held in Trust: Money held on behalf of property owners.
Supplier Funds Held in Trust: Money held for payment to suppliers (often zero if not applicable).
Booking Funds Held in Trust: Funds from bookings that are yet to be disbursed.
Channel Funds Held in Trust: Funds from various booking channels (often zero if not applicable).
Business Funds Held in Trust: Money belonging to the business, usually representing commissions and fees.
Why is a Three-Way Balance Important?
Accuracy: Ensures all financial records are accurate and match across different records.
Compliance: Helps meet legal and regulatory requirements, especially for trust accounting.
Transparency: Provides clear financial status, aiding in better financial management and decision-making.
Conclusion
Understanding your three-way balance is essential for maintaining financial accuracy and compliance in your real estate business.
By regularly reconciling your bank balance, cashbook balance, and ledger balance, you ensure that all financial transactions are accurately recorded and accounted for.