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Bank Reconciliation Statement

WHAT IS A BANK RECONCILIATION STATEMENT AND WHY DO I NEED ONE?

A Bank reconciliation Statement compares what your bank statement shows is in your account against what your nominal ledger bank account shows what money you have (or what money you really have available to you).

A bank reconciliation is performed to ensure that every transaction (payments and receipts) that appear on your bank statement are recorded in your accounts system. You compare (reconcile) the transactions on your bank statement to the transactions in your accounts system.
If something on your bank statement is not in your accounts system then the reconciliation will show this to you.

If a transaction is found on your bank statement that is not in your accounts system, you must record this omitted transaction in your accounts system before proceeding to enter any more transactions.

Your bank reconciliation is the most important bookkeeping procedure. Without it you cannot produce a proper set of management accounts (Profit & Loss Statement, Balance Sheet) as you cannot be sure that all the transactions are recorded in your accounts system. And if transactions (costs) are missing from your Profit & Loss Statement the true profit or loss for your business will not be showing.

Remember you may have written cheques that have not yet reached your bank account. This has been entered in your accounts system but the bank has no knowledge of the cheques until your suppliers present them. So we must reconcile the two accounts.

Example of a Bank reconciliation statement

Balance as per bank statement
Less: outstanding cheques
(Cheques that have not yet reached your bank)
Add outstanding lodgements
(Lodgements you have made, but the bank has not yet processed)

The amount calculated should now equal the amount of money you really have and the figure in your bank account on your balance sheet


Example with values:

BANK RECONCILIATION STATEMENT AS AT 31ST JANUARY
Balance as per bank statement at 31st Jan 5,500
Less outstanding cheques
1015 John O’Brien 1500
1018 Mary White 500 (2,000)
Add outstanding lodgements
105 5 customer cheques 3,000 3,000
Reconciled Balance (balance as per your bank a/c) 6,500
Balance as per nominal ledger bank a/c at 31st Jan 6,500
Difference 0.00

Each time there should be no difference
If there is a difference, then there is a mistake somewhere and you have to go and find it!

The Bank Reconciliation Statement is the most important procedure that needs to be performed if you want balanced and accurate accounts. Your accounting software should provide this facility. Use it!

Bank Account Dr Cr
1/1/13 Balance b/f 10,000
Cheques written 6,000
Direct Debits 2,000
Money received 4,500
31/1/13 Balance c/f 6,500
14,500 14,500
1/2/13 Balance b/f 6,500


Transactions used for the Bank Reconciliation example
Cheques written
02/1/13 John O’Brien 1015 1500.00 o/s
10/1/13 Paul Conner 1016 3000.00
15/1/13 P.O’Reilly 1017 1000.00
25/1/13 Mary White 1018 500.00 o/s
Total for Cheques 6000.00
Direct Debits
10/1/13 Gas Co. DD 500.00
17/1/13 Telephone Co. DD 1500.00
Total for Direct Debits 2000.00

o/s = outstanding cheque, a cheque not yet presented to your bank by the person you gave it to.