Bank Reconciliation Statements

Purpose of a bank reconciliation statement

Purpose of a bank reconciliation statement

What is the purpose of a bank reconciliation statement?

• If the balance on the bank statement is different to the bank balance in the cash book, then the business produces a bank reconciliation statement

• This is a statement which explains why the balances are different

• The cash book can be updated with missing transactions that are on the bank statement

  • This is very common these days as a lot of transactions are digital

• However, the business cannot update the bank statement with missing transactions that are in the cash book

  • A bank reconciliation statement is needed to show these

• It contains details of any:

  • Unpresented cheques

  • Uncredited deposits

  • Errors

Preparing a bank reconciliation statement

Preparing a bank reconciliation statement

How do I prepare a bank reconciliation statement?

• STEP 1
  Update the cash book using the bank statement

  • Calculate the updated balance

• STEP 2
  Start the bank reconciliation statement with the balance shown on the bank statement

  • Make sure you check whether the balance represents money in the bank or the amount that the bank account is overdrawn

    • A debit balance on the bank statement represents an overdraft

• STEP 3
  Add any uncredited deposits

  • These are the debit entries in the cash book that are missing from the bank statement

  • If there is more than one, then

    • Add these amounts together in the left column of the bank reconciliation statement

    • Put the total in the right column

  • Add the total to the balance shown on the bank statement

• STEP 4
  Add any bank errors that have decreased the balance on the bank statement

  • Total these together with the previous entries

• STEP 5
  Subtract any unpresented cheques

  • These are the credit entries in the cash book that are missing from the bank statement

  • If there is more than one, then:

    • Add these amounts together in the left column of the bank reconciliation statement

    • Put the total in the right column

  • Subtract the total from the current amount in the right column in the statement

• STEP 6
  Subtract any bank errors that have increased the balance on the bank statement

  • Total these together with the previous entries

• STEP 7
  Check that this amount is equal to the bank balance shown in the cash book

  • If the balance is negative, then the cash book should have a credit balance

Can I start the bank reconciliation statement with the balance shown in the cash book?

• You can create the bank reconciliation statement using the reverse order:

  • Start with the balance shown in the cash book

  • Add the unpresented cheques

  • Subtract the uncredited deposits

  • Check that it is equal to the balance shown on the bank statement