Definition
Bank Reconciliation Statement is the process that shows the difference between the Cash Book Balance and the Bank Statement Balance. This is the statement which identify the discrepancies between the Cash Book Balance and the Bank Statement Balance. Business prepare a bank reconciliation statement to explain the causes of difference and to reconcile the balance.
Bank Reconciliation Statement to be prepared at a regular interval to confirm that the company’s cash records are correct. Bank Reconciliation may help to detect the fraud and the manipulation incurred.
When the Bank provides the Bank Statement to its client that contains the company’s opening cash balance, transaction incurred during this period such as direct credited by the bank, direct debited by the bank, bank charges applied, bank interest earned and the closing cash balance.
Reasons for Difference between Cash Book Balance and Bank Statement Balance
- Cheque deposited into bank but yet not credited or collected by the bank
- Cheque or Cash deposited into Bank and credited to bank statement but omitted to record in the cash book.
- Up-country cheques deposited into the bank and credited into bank statement subject to collection charges
- Cheques issued but not presented for the payment
- Discounted bills dishonored and debited in the Bank Statement but not recorded in the cash book.
- Direct deposits by customers into the bank but not recorded in the cash book.
- Incomes collected and credited by the bank under standing order but not recorded in the cash book
- Payments and remittances under the standing order debited into bank statement but not recorded in the cash book
- Charges and Expenses, Interest on overdraft debited in the Bank statement but not recorded in the cash book
- Interest on deposits allowed by the bank and credited in the Bank statement but not recorded in the cash book
- Errors in casting, balancing or carry forward either in the cash book or in the bank statement or in the both.
Bank Reconciliation Statement prepartion procedure
| Ending Balance as Per Bank Statement | **** |
| Add : Deposits in Transit | ** |
| Deduct: Any Cheques that have not cleared yet. | ** |
| Deduct: Bank Charges applied | ** |
| Add: Bank Interest earned on deposits/remaining balance | ** |
| Ending Balance as per Cash Book | *** |
** The adjusted Bank Balance should equal the company’s Ending adjusted Cash Balance.
Summary of items causing differences between Bank Statement and Cash Book Balance
| Serial No. | Item | Effects on Cash Book | Effects on Bank Statement |
| 1 | Directed Credited by the Bank | Not included | Recorded on credit side |
| 2 | Standing Order Payments | Not included | Recorded on debit side |
| 3 | Direct Payments made by the Bank | Not included | Recorded on debit side |
| 4 | Bank Charges and Interest Applied | Not included | Recorded on debit side |
| 5 | Dishonoured Cheques | Not included | Recorded on debit side |
| 6 | Un-presented Cheques | Recorded on credit side | Not included |
| 7 | Un-credited Cheques | Recorded on Debit side | Not included |