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Bank Reconciliation and Examples

Bank Reconciliation and Examples

Bank Reconciliation and Examples

Bank Reconciliation

The bank reconciliation is a control, carried out by the accountant in order to bring the bank accounts as close as possible to the reality of the account statements, that is to say to verify the concordance of the two accounts (bank account and statement of account).

It consists of establishing a correspondence between the movements recorded on the bank statement and the transactions recorded in the company’s accounts. This well-done process will make it possible to identify any errors, identify and justify the various discrepancies observed. The reconciliation process results in the inclusion of adjustment postings.

The technique of the reconciliation statement will make it possible to justify the differences in balances.

Bank reconciliation therefore consists in associating (pointing) the transactions already recorded in the company and in the bank in order to reveal isolated entries, that is to say recorded only by the bank or the establishment.

Stakes or problems of bank reconciliation

This allows errors to be detected during recordings such as forgetting or mistakes made.

By eliminating the differences between the statement and the accounting to get closer to reality, it is possible to detect:

forgotten records;
bank charges, bank charges, which we discover on the account statement;
errors in accounting records;
lags of certain operations known to the establishment first and which the bank records afterwards, or vice versa.
(Knowing that the accounting transaction may appear the following month on the bank statement)

Bank Reconciliation Statement and Examples

The bank reconciliation statement is a valuable tool to identify the differences between the balance according to the cash book and the bank statement. Bank reconciliation also makes it possible to detect certain frauds and manipulations. It is good practice to perform this exercise at regular intervals, which helps to maintain controls in the organization. This also helps to keep the cash book up to date as transactions that are correctly recorded in the bank statement can be recorded in the cash book.

Example 1
From the Given  particulars, prepare Bank Reconciliation statement
for M/s XYZ and company as at 31st December, 2020
Bank Reconciliation Statement                                                                                                Month Ended 31st December 2020
Particulars Amount
Balance as per Bank Book 8 000
Add: Unpresented Cheques
Cheque Presented on 05.03.2019 25 000
Cash Deposited Directly by Customer not Recorded in Books 50 000
Less: Deposit in Transit 10 000
Dishonoured Cheque by Bank 20 000
Bank Charges 1 050
Balance as per Bank Books 51 950
Example 2
Prepared Bank Reconciliation Statement for 31st January, 2020.
Below is Bank Statement of ABC Limited:
Bank Statement of ABC International Limited
 Account with State Bank of World
 Date  Particulars  Withdrawals(Dr)  Deposits (Cr)  Balance
01/01/2019  Balance  30,26,780
01/08/2019  Issued to Supplier GG (Cheque NO 12345)  6,70,000  23,56,780
01/12/2019  Cheque Deposited from Customer DF  5,00,000  28,56,780
16/01/19  Cheque Deposited from Customer BG  2,30,000  30,86,780
18/01/19  Issued to XYZ Ltd (Cheque No 45678)  1,55,000  29,31,780
22/01/19  BC Ltd (Cheque No 12347) 86 000  28,45,780
27/01/19  Wages (Cheque No 12348) 10 950  28,34,830
30/01/19  Cheque Unpaid (Customer DF)  5,00,000  23,34,830
30/01/19  Bank Charges 900  23,33,930
Below is Bank Account Ledger in the Books of ABC International Limited:
Books of ABC Limited
Bank Account State Bank of World
Date Particulars Debit Credit Balance
01/01/2019 Balance  30,26,780
01/08/2019  Issued to Supplier GG (Cheque NO 12345)  6,70,000  23,56,780
01/12/2019  Cheque Deposited from Customer DF  5,00,000  28,56,780
01/12/2019  Cheque Deposited from Customer BG  2,30,000  30,86,780
01/12/2019  Issued to XYZ Ltd (Cheque No 45678)  1,55,000  29,31,780
19/01/19  BC Ltd (Cheque No 12347) 86 000  28,45,780
26/01/19 Issued to DFP Cheque No 12349 2,20,000  26,25,780
28/01/19  Wages (Cheque No 12348) 10 950  26,14,830
31/01/19  Issued to XYZ Ltd (Cheque No 50006) 450000  21,64,830
31/01/19  Cheque from Customer C Deposited in Bank 700000  28,64,830
Example 3
Bank Reconciliation Statement                                                                                                                                                  Month Ended 31st January 2021
Particulars Amount
Balance as per Bank Book 2 864 830
Add: Unpresented Cheques
26/01/2019 Cheque Issued to DFP Limited (Chq. No. 12349), Not Presented in Bank 220 000
12/01/2019 Cheque Issued to XYZ Limited (Chq. No. 50006), Not Presented in Bank 450 000
Less:
31/01/2019 Deposit in Transit 700 000
30/01/2019 Cheque of Customer DF Dishonoured by Bank 500 000
31/01/2019 Bank Charges Not Recorded in Books 900
Balance as per Bank Books 2 333 930

How to perform a bank reconciliation?

What you need:
To perform a bank reconciliation, you need your bank statements, your ‘bank account’ entries in your accounting, as well as your previous bank reconciliation, if you already have one.

What you should do:
The process consists of verifying each line of your bank statement one by one with the corresponding bank account records. You must verify the existence of the accounting movement as well as the accuracy of the amounts.

Regularization:
Once the discrepancies or deviations have been identified, it is a matter of regularizing the entries. Any missing entries are entered in the bank account for example account n° 512.

Verification:
At the end of the process, it is checked that the balance of the bank statement is indeed the same as the balance of the Bank for example n° 512 account in the accounts, plus or minus the sums of money that the bank has not actually received yet. After you have checked all the deposits and withdrawals, your business bank balance should match the totals in your business accounts. This will be the starting point for your next reconciliation.

The sums not yet debited or received by the bank must be regularized if possible during the next bank reconciliation.

Read also: Accounting Journals | What are Journal Entries in Accounting?

How to do bank reconciliation with steps and examples

Suppose you run a business called Handy Stand. When you receive your bank statement at the end of the month, this is how you reconcile it.

There are 3 steps: comparing your statements, adjusting your balances, and recording the reconciliation.

Step one: Comparing your statements

First, you compare your bank statement for the month of March with your cash book balance for the end of March. They look like this:

Bank balance: $1,081

Cash book balance: $1,200

Second, you go through your bank statement, and find the following line items not included in your cash book:

Email money transfer fees, multiple dates: $7

Checking account fee on Mar. 28: $12

Third, you go through your cash book, and find the following line items not included in your bank statement:

Check deposited on Mar. 27: $8
Check deposited on Mar. 28: $4
Check issued on Mar. 28: $20

With that information, you can now adjust both the balance from your bank and the balance from your books so that each reflects how much money you actually have.

Step two: Adjusting your balances

Adjustments to bank account balance

Original balance: $1,081

Step 1: Add outstanding deposits

Date Deposit Balance
Mar. 27 80 1,161
Mar. 28 40 1,201
March total 120 $1,201

Step 2. Deduct outstanding withdrawals

Date Withdrawal Balance
Mar. 28 20 1,181
Mar. total 20 $1,181

Adjusted balance: $1,181

Adjustments to books balance:

Original balance: $1,200

Step 1: Add outstanding deposits
Date Withdrawal Balance
N/A N/A 1,200
March total N/A $1,200
Step 2: Deduct outstanding withdrawals
Date Withdrawal Balance
Mar. 3 (email transfer fee) 1 1,199
Mar. 7 (email transfer fee) 1 1,198
Mar. 19 (email transfer fee) 1 1,197
Mar. 20 (email transfer fee) 1 1,196
Mar. 22 (email transfer fee) 1 1,195
Mar. 25 (email transfer fee) 1 1,194
Mar. 27 (email transfer fee) 1 1,193
Mar. 28 (account fee) 12 1,181
March total N/A $1,181

Adjusted balance: $1,181

Now that both your bank statement and your books share the same end-of-month balance for March, you have the real balance: $1,181.

Step three: Recording the reconciliation

When you record the reconciliation, you only record the change to the balance in your books. The change to the balance in your bank account will happen “naturally”—once the bank processes the outstanding transactions.

You have two options for recording your bank reconciliation. One is making a note in your cash book (faster to do, but less detailed), and the other is to prepare a bank reconciliation statement (takes longer, but more detailed).

A cash book note:

At the bottom of your spreadsheet for March, add this note, tracking changes to your balance.

Bank Reconciliation

Detail Amount
Cash book balance 1,200
Add: Outstanding deposits 0
Subtotal 1,200
Less: Outstanding withdrawals (fees) 19
Bank statement balance $1,181
Bank reconciliation statement:

Business name: Handy Stand

Bank statement date: March 28, 2020

Bank account: Business Checking

Outstanding Withdrawals
Date Detail Amount
Mar. 3 Email transfer fee 1
Mar. 7 Email transfer fee 1
Mar. 19 Email transfer fee 1
Mar. 20 Email transfer fee 1
Mar. 22 Email transfer fee 1
Mar. 25 Email transfer fee 1
Mar. 27 Email transfer fee 1
Mar. 28 Checking account fee 12
Total $19
Outstanding Deposits
Date Detail Amount
None N/A 0
Total $0
Reconciliation
Detail Amount
Cash book balance 1,200
Add: Outstanding deposits 0
Subtotal 1,200
Less: Outstanding withdrawals (fees) 19
Bank statement balance $1,181

What if something doesn’t match?

It is normal to see minor differences due to timing, including items that have not yet been cleared by the bank, but you should be able to explain these differences easily. For example:

You can write a check to a vendor and reduce your account balance on internal systems accordingly, but your bank will show a higher balance until the check reaches your account. These checks are called outstanding checks.
An automatic electronic payment can wipe your account a day before or after the end of the month, and you might expect to see it in a different month.
When you can easily report the variances, there is probably no need to worry. When it takes longer to find and correct the discrepancies, larger issues may need to be addressed.

To detect bank errors: it’s rare, but sometimes the bank will make a mistake. If there’s a discrepancy in your accounts that you can’t explain any other way, it may be time to speak to someone at the bank.

Source: PinterPandai

Photo credit: Pixabay

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