How To Make A Bank Reconciliation Statement

Every month, you need to prepare a bank reconciliation sheet.

You do this by comparing and correcting errors in your bank statement closing balance and Cash Book closing balance for the month or year end.

Having corrected any errors, both balances should be the same and you will get what in accounting terms we refer to as the bank reconciliation statement.

By this stage, we expect that you have written a cashbook that reflects all your receipts and payments through your business and bank account.

The objective is to reconcile with the bank. So what you are going to look out for at this stage are any transactions that you recorded in your cash book but do not yet appear in the bank statement and vise versa. In the event of no exceptions, you should have a bank reconciliation statement.

Regular Exceptions to note

If you by any chance amended a sales invoice :

  • Issue a new invoice.

  • Write ‘Cancelled on the old invoice: Refer to the old invoice with words like: see invoice no. ‘xxx’ on the new original invoice and file it in Sales Paid.

If you received partial payment:

  • Write ‘part paid’, the date and the amount on the invoice.

  • File a photocopy in Sales Paid and keep the original in Sales Unpaid.

  • When you update the Cash Book, put P by the invoice number, eg P16.

Please take note of these exceptions because the bank reconciliation deals with only cash movements. So any transactions on your side that do not pass through the bank will generate what we call reconciling adjustments.

If you issue a credit note, it reduces the amount you invoiced your customer:

  • Give the credit note a number, like an invoice and file it in Sales Unpaid.

  • When updating the Cash Book, record the details as usual but put the amount in brackets to show that it must be deducted from the sales total.

The Reconciling Process

Match each entry in your Cash Book with the entry on the bank statement.

  • If you regularly pay batches of cheques into your bank, you need a ‘bank’ column in the ‘money in’ section of your Cash Book. This shows the total value of money paid in each day, which will match the figures shown on your bank statement.

Payments made by direct debit or standing order will not yet be recorded in the Cash Book. Nor will bank charges and interest, hence subject to a bank reconciliation.

  • Enter the details in the Cash Book below the list of entries for cheques which have been written out that month.

  • Then tick off the item in the Cash Book and on the bank statement.

Make sure that every item appearing on the bank statement has been ticked off.

Some items will not yet appear on the bank statement.

  • Money paid in by you but not yet cleared (eg customers’ cheques).

  • Cheques you have sent to suppliers which have yet to be paid into their accounts.

Calculate the adjusted bank reconciliation balance.

  • The adjusted bank balance is what the bank balance would be if all the money paid in and all the cheques paid out were shown on the bank statement.
  • It equals the end-of-month balance showing on the bank statement plus money paid in but not on the statement less cheques written, but not on the statement.

Outline To Reconciling with the bank

  • Write down the adjusted bank balance at the start of the month.

  • Add the total sales revenue paid in and other income for the month (taken from your Cash Book).

  • Deduct the total payments for the month (taken from your Cash Book).

  • This should equal the adjusted bank balance at the end of each month.

When the figures agree, you would have successfully reconciled your bank account.If the figures do not agree, then there is an error. If the difference is $9.25, look for a sales invoice as above, other income, or payment entry for $9.25.

You may contact us, if stuck with your bank reconciliation, others wise it should not take you too long to find and correct any unreconciled errors.

Return From Bank Reconciliation To Book-Keeping

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