Bank Reconciliation

Bank Reconciliation

Bank reconciliation is where you check that your bank statement (the banks version of your bank account) matches your own cash book (your version of the bank account).  Its good practice to do so because: -

·         We can correct errors we make in our cash book

·         We can notify the bank of errors they may have made

·         We can update the cash book with items we have missed

·         We can identify out of date cheques and cancel them in the cash book

·         We can identify dishonoured cheques and update the cash book accordingly

·         We can use it as a deterrent to fraud by comparing our version  to the banks independent version

Technique

If the exam question says it’s not been put in the cash book – put it in!

If it’s been put in the cashbook incorrectly – fix it!

Or

If the question gives you a bank statement and cash book you will need play snap by pairing items up (tick both items though!) and then writing things which are not ticked on the bank statement into the cash book.  Remember that if it’s a debit on the bank statement it should be credited in your cash book as you write things from your own perspective.

Balance off the cash book –you are now ready to do the bank reconciliation statement.  There should be some things which have ALREADY been put in the cash book but are not on the bank statement.  These are spotted as they were not ticked by you.  Usually these are timing differences possibly caused by putting money in at the end of the month so it’s does not show on this month’s bank statement (i.e. an uncleared lodgement).    A supplier of ours might have put a cheque in their safe and forgot to take it to the bank (i.e. present it) for payment (an unpresented cheque)

The next part to do is one that many students forget – it’s the layout! 

‘The balance on the bank statement added to uncleared lodgements (debits) minus unpresented cheques (credits) should equal the updated cash book figure. ‘    This sentence can be completely reversed if you prefer to set this out the opposite way round.

I try to get my students to remember things by using a rhyme.   I’m sure you can think of a better one !!

Boasters Say

Any Utter Lies

Let’s Unfollow Cause

Can’t Be bothered

Your layout then should look something like the ones below.  It doesn’t usually matter which way round the middle lines are as long as it’s the correct direction (i.e. you add when you are supposed to add etc.!).  If you are not given the bank statement figure then you will need to work it out by working backwards.

Nial Satis

Bank Reconciliation Statement at 1^st January 2013

Balance as per Bank Statement                                                                 xxxx

Add Uncleared Lodgements                                                                      xxxx

Less Unpresented Cheques                                                                       xxxx

Balance as per updated Cash Book                                                           xxxx

Or

Balance as per updated Cash Book                                                           xxxx

Add Unpresented Cheques                                                                       xxxx

Less Uncleared Lodgements                                                                      xxxx

Balance as per Bank Statement                                                                 xxxx