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Monday, December 14, 2009

Bank Reconciliation

Bank reconciliation is a comparison of a bank statement with the cash book.

Differences between the balance on the bank statement and the balance in the cash book will be errors or timing differences, and they should be identified and satisfactorily explained.

The differences fall into three categories,
  1. Errors
  2. Bank charges or interest
  3. Time differences

Bank reconciliation is needed to identify and account for the differences between the cash book and the bank statement.

What to look for when doing bank reconciliation

The cash book and bank statement will rarely agree at a given date. If you are doing bank reconciliation, you may have to look for the following items.

  • Corrections and adjustments to the cash book
    -Payments made into the account or from the account by way of standing order, which have not yet been entered in the cash book.
    2. -Dividends received, paid direct into the bank account but not yet entered in the cash book.
    3. -Bank interest and bank charges, not yet entered in the cash book.
  • Items reconciling the correct cash book balance to the bank statement.
    -Cheques drawn by the business and credited in the cash book, which have not yet been presented to the bank, or “cleared” and so do not yet appear on the bank statement.
    2. -Cheques received by the business, paid into the bank and debited in the cash book, but which have not yet been cleared and entered in the account by the bank, and so do not yet appear on the bank statement.


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