Accounting Lesson: Preparation of Bank reconciliation statement

Introduction

This tutorial provides a step-by-step guide on how to prepare a bank reconciliation statement. Bank reconciliation is a crucial accounting process that ensures the accuracy of financial records by comparing the company's bank statement with its own records. This process helps identify discrepancies, ensuring that the company's cash balance is accurate and up-to-date.

Step 1: Gather Required Documents

Before starting the bank reconciliation process, collect the following documents:

• Bank statement for the period you are reconciling.
• Company cash book or ledger that records all transactions.
• Any related documents such as invoices or receipts.

Practical Tips

• Ensure that the bank statement covers the same time period as your cash records.
• Keep all documents organized for easy reference.

Step 2: Compare Transactions

Start comparing the transactions listed in the bank statement with those in your cash book.

Actionable Steps

1. Check Off Transactions: As you find matching transactions, mark them off in both the bank statement and your cash book.
2. Note Differences: For any transactions that appear in one document but not the other, make a note of them for further investigation.

Common Pitfalls to Avoid

• Forgetting to check for outstanding checks or deposits that haven't cleared.
• Overlooking bank fees or interest earned that may not be recorded in your cash book.

Step 3: Identify and Adjust for Discrepancies

Once you’ve compared the transactions, identify any discrepancies and adjust your records accordingly.

Key Actions

• Outstanding Checks: List any checks that have been issued but not yet cleared the bank.
• Deposits in Transit: Identify deposits recorded in your cash book but not reflected on the bank statement.
• Bank Errors: If you find errors made by the bank, note them for correction.

Example Adjustments

• If a check for $200 is outstanding, it will reduce your cash balance in the reconciliation.
• A deposit in transit of $150 will need to be added to the bank statement balance.

Step 4: Prepare the Bank Reconciliation Statement

Using the adjusted figures from both the bank statement and your cash book, prepare the reconciliation statement.

Structure of the Statement

1. Bank Balance: Start with the ending balance from the bank statement.
2. Add Deposits in Transit: Add any deposits not yet reflected in the bank statement.
3. Subtract Outstanding Checks: Deduct any outstanding checks.
4. Compare Adjusted Balance: Ensure the adjusted bank balance matches the cash book balance.

Example Format

Bank Balance as per Statement: $5,000
Add: Deposits in Transit: $300
Less: Outstanding Checks: $200
Adjusted Bank Balance: $5,100

Cash Book Balance: $5,100 (Should match the adjusted bank balance)

Conclusion

Preparing a bank reconciliation statement is an essential task for maintaining accurate financial records. By following these steps, you can ensure that your cash balance is accurate, identify discrepancies early, and maintain financial integrity. As a next step, regularly schedule monthly reconciliations to avoid issues and keep your records updated.