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Preparing a bank reconciliation statement

The following steps show how a bank reconciliation statement is prepared.

  • Note the similarity and dissimilarity between the entries in the cash book and on the bank statement, and tick off the items that are the same on both sets of records.
  • Items not ticked on one side are those which have not been recorded on the other side, and vice versa.
  • Enter in the cash book those items that are not ticked on the bank statement.
  • Items not ticked in the cash book are taken into consideration when preparing the bank reconciliation statement.

The bank reconciliation statement usually prepared monthly can begin with the closing balance in the cash book, or with the closing balance on the bank statement.

First method (Starting with the cash book balance)
Assuming the bank balance in the cash book is a debit balance:
Add: all cheques issued but not yet presented to the bank
Less: all deposits made into the account but not yet credited by the bank
Assuming the bank balance in the cash book is a credit balance:
Add: all deposits made into the account but not yet credited by the bank
Less: all cheques issued but not yet presented to the bank

Second method (Starting with the bank statement balance)
Assuming the bank statement shows an overdrawn balance:
Add: all cheques issued but not yet presented to the bank
Less: all deposits made into the account but not yet credited by the bank
Assuming the bank statement shows a favourable credit balance:
Add: all deposits made into the account but not yet credited by the bank
Less: all cheques issued but not yet presented to the bank

Using the first method (Starting with the cash book balance) is enough to prepare an accurate bank reconciliation statement. Using the second method (Starting with the bank statement balance) is merely updating the bank statement which isn’t necessary. The closing balance on the bank statement is of little consequence to the company. What really matters to the company is the closing balance as per the cash book and it is this balance that will be shown on the year-end financial statements. The bank statement provides a useful aid to arriving at an accurate closing cash balance.

An example of a bank reconciliation statement:

Cash Book

Date Particulars Folio Amount Date Particulars Folio Amount
$ $
20X1 20X1
Jan 01 Balance b/d 410 Jan 05 B Bray 110
"   14 B Bark 130 "   14 B Bleat 150
"   21 H Hiss 220
"   26
M Meow 230
"   28
M Moo 280 "   28
R Roar 190
"   30
Q Quack 360 "   28
S Squeak 270
"   29
W Wail 130
"   31
Balance c/d 320
1,400 1,400
20X1
Feb 01 Balance b/d 320


Bank Statement

Withdrawals Deposits Balance
$ $ $
20X1
Jan 01 Balance b/f 410
"   07 No: 246123 110 300
"   14 Deposit 130 430
"   15 No: 246124 150 280
"   21 Deposit 220 500
"  31 Interest charges 50 450
"  31 No: 246126 190 260


Bank Reconciliation Statement as at 31 January 20X1

$ $
Balance as per cash book 320
Add: Unpresented cheques:
M Meow 230
S Squeak 270
W Wail 130 630
950
Less: Bank lodgements not credited:
M Moo 280
Q Quack 360
640
Bank charges 050 690
Balance per bank statement 260




$ $
Balance as per bank statement
260
Add: Bank lodgements not credited:


M Moo 280

Q Quack 360


640

Bank charges 050 690
950
Less: Unpresented cheques:


M Meow 230

S Squek 270

W Wail
130 630
Balance per cash book

320


From the above reconciliation statements:

Bank charges

The bank charges were not taken into the cash book which means the cash balance is more by the amount of the bank charges, so on the first reconciliation statement above the charges are deducted from the balance per cash book.

On the second reconciliation statement, the bank charges are added back to the balance per bank statement to make it more by the amount of the bank charges. This is to make the balance same as the cash book balance as the cash book bank balance is more by this amount.

Last Updated (Friday, 03 September 2010 19:06)