CNA Getting Started - Collateral Bank Account: Setting one up and Some Considerations

In this article, I will discuss the method for and some cautions one might consider when setting up a collateral bank account, an account that checks will not be written to or from, but will hold funds to be used to restore their general checking account to a set balance, a practice used by some to simplify bank reconciliation.  I imagine these cautions will be helpful when considering the creation of any non-standard bank account.  I also detail the method for setting up and using a Transfer Balance account for use between designated bank accounts as may be necessary.

 

The set-up of a new account takes place in the Accounts function:

  1. Enter a Description for the account,
  2. Select 'Asset' as the Account Type,
  3. Give the account a Shortcut number,
  4. Select the appropriate Entity and Class to which the account will belong, and
  5. Click [Submit] at the bottom to finalize the creation of the new account.

Worthy of note is that, though it is technically a bank account, I would in the case of a collateral account recommend AGAINST designating the account as a Bank Account: designating it as such will make the account available for reconciliation in CNA, but will also make it available for selection in the Checks function for payment for bills (an undesired side effect for an account that will not have any checks) and will actually significantly complicate the process of recording the transfers (as detailed below); not to mention that their desire to set up a collateral account indicates their intent to reconcile the account externally.

Also worthy of note is that I must recommend the usage of journal entries to record the transfers between these accounts, ESPECIALLY if you do elect to designate the account as a bank account: one will quickly notice that the deposits an account receives only appear on the receiving account's reconciliation and that the credit for that deposit does NOT appear on the sending account's reconciliation (Checks written to transfer balances have a similar issue.); however both sides of Journal Entries do appear: when entered correctly, the debit will appear on the receiving account's reconciliation, and the credit will appear on the sending account's reconciliation.

 

There is a method available for those who nevertheless do elect to designate the collateral account as a bank account, but it is admittedly somewhat complex: one also sets up an asset account to make use of as a transfer clearing account that checks will be written to on the sending account's end and that deposits will be written from on the receiving account's end; which I believe to be a lot of work with essentially no payoff for an account that doesn't have a checkbook, especially in light of the much simpler method detailed above. 

In the Accounts function:

  1. Enter a Description for the Transfer Clearing account,
  2. Select 'Asset' as the Account Type,
  3. Give the account a Shortcut number,
  4. Select an appropriate Entity and Class for the account, and
  5. Click [Submit] at the bottom to finalize the creation of the new account.

Now, when a transfer needs to be recorded, a bill will need to be created and a check number from the sending account will need to be assigned to it.  In the Bills function:

  1. Select the A/P Trade account as the AP Account,
  2. Select a Balance Transfer vendor, (If you don't already have one, one can be created here on-the-fly: the record only needs a name.)
  3. Assign a check number from the Sending bank account,
  4. Select the Transfer Clearing account created above as the line item,
  5. Enter the amount of the transfer as the Amount, and
  6. Click [Submit] to finalize the bill.

Next, create a deposit to the receiving bank account.  In the Deposits function:

  1. Select the Receiving bank account as the Bank Account,
  2. Select the Transfer Clearing account as the line item,
  3. Enter the amount of the transfer as the Amount, and
  4. Click [Submit] to finalize the deposit.

Having dutifully followed the above process, one has

  • Decreased the sending account's balance by the transfer amount
  • Increased the receiving account's balance by the transfer amount
  • Left the Transfer Balance account's balance at $0.00, and
  • Created transactions that will appear on both accounts' respective bank reconciliations.
Have more questions? Submit a request

Comments

0 comments

Please sign in to leave a comment.