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
Balance as per Bank Book8 000
Add:Unpresented Cheques
Cheque Presented on 05.03.201925 000
Cash Deposited Directly by Customer not Recorded in Books50 000
Less:Deposit in Transit10 000
Dishonoured Cheque by Bank20 000
Bank Charges1 050
Balance as per Bank Books51 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 Charges900 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
01/01/2019Balance 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
26/01/19Issued to DFP Cheque No 123492,20,000 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 Bank700000 28,64,830
Example 3
Bank Reconciliation Statement                                                                                                                                                  Month Ended 31st January 2021
Balance as per Bank Book2 864 830
Add:Unpresented Cheques
26/01/2019Cheque Issued to DFP Limited (Chq. No. 12349), Not Presented in Bank220 000
12/01/2019Cheque Issued to XYZ Limited (Chq. No. 50006), Not Presented in Bank450 000
31/01/2019Deposit in Transit700 000
30/01/2019Cheque of Customer DF Dishonoured by Bank500 000
31/01/2019Bank Charges Not Recorded in Books900
Balance as per Bank Books2 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.

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.

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

Mar. 27801,161
Mar. 28401,201
March total120$1,201

Step 2. Deduct outstanding withdrawals

Mar. 28201,181
Mar. total20$1,181

Adjusted balance: $1,181

Adjustments to books balance:

Original balance: $1,200

Step 1: Add outstanding deposits
March totalN/A$1,200
Step 2: Deduct outstanding withdrawals
Mar. 3 (email transfer fee)11,199
Mar. 7 (email transfer fee)11,198
Mar. 19 (email transfer fee)11,197
Mar. 20 (email transfer fee)11,196
Mar. 22 (email transfer fee)11,195
Mar. 25 (email transfer fee)11,194
Mar. 27 (email transfer fee)11,193
Mar. 28 (account fee)121,181
March totalN/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

Cash book balance1,200
Add: Outstanding deposits0
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
Mar. 3Email transfer fee1
Mar. 7Email transfer fee1
Mar. 19Email transfer fee1
Mar. 20Email transfer fee1
Mar. 22Email transfer fee1
Mar. 25Email transfer fee1
Mar. 27Email transfer fee1
Mar. 28Checking account fee12
Outstanding Deposits
Cash book balance1,200
Add: Outstanding deposits0
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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