Bank reconciliation Statement: Preparation and Format Page 2

A business enterprise pays through cheques and collects money from its customers through cheques. Even a small business enterprise maintains current account with a bank through which it pays and receives. Outstanding Checks
Outstanding checks means checks issued by the company but not recorded in the bank statement. It happens when the company enters the details of the checks in its cash book but is not deposited or yet cleared from the bank account.

It is a unique book of account that combines journal and ledger. Cash Book is a journal for making primary entry of all cash transactions. Except for the above fact, under normal circumstances, if both the bank and account holder have kept their books properly, the cash book and the bank statement should show identical balances. Similarly, in the event of an overdraft, the cash book would show a credit balance, but the bank statement would show a debit balance.

• The format or representation of bank reconciliation statements varies depending on the company’s accounting guidelines and structure.
• Bank charges amounting to Rs. 17 had not been entered in the Cash Book.
• As a result, bank transactions can be automatically imported into an accounting software, where one is able to categorize and match a large number of transactions with one click of a button.
• It would be a good practice to refer to the Bank Reconciliation Statement prepared at the end of the previous month.

Such errors are committed while recording the transactions in the cash book. As a result, the balance as per the cash book differs from the passbook. However, there may be a situation where the bank credits your business account only when the cheques are actually realised.

Which of these is most important for your financial advisor to have?

Therefore, the bank reconciliation process should be carried out at regular intervals for all of your bank accounts. This is because reconciling the cash book with the passbook at regular intervals ensures that your business’s cash records are correct. In the absence of proper bank reconciliation, the cash balances in your bank accounts could be much lower than the expected level. It reflects the items or transactions that are identified to cause the differences in the balances as per cash book and bank pass book. Reconciling bank statements with the cash book balances helps a business entity to ascertain the causes of differences.

• The design of this Cash Book is like the single column Cash Book except that it has two amount columns on both the debit and credit sides.
• The cash book reflects an overdraft balance of Rs. 1,8000.
• As of 30 September 20XX, the ending debit cash balance in the accounting records of Company A was $1,500, whereas its bank account showed an overdraft of $500.
• Since it is ledger of cash and bank accounts, no posting for cash and bank accounts is necessary.

The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. NSF cheques are an item to be reconciled while preparing the bank reconciliation statement. This is because when you deposit a cheque in your bank account, you consider that the cheque has been cleared by the bank. But this is not the case as the bank does not clear an NFS cheque. Deposits in transit are also referred to as outstanding deposits. Such deposits are not showcased in the bank statement on the reconciliation date.

Effect of Time Intervals on Bank Reconciliation Statements

(g) A periodic payment by bank of Rs. 160 understanding instructions not entered in the cash book. (a) Deposits made by Sara Loren on 30 May, $1,810, and on 31 May, $2,220, have not been credited to the bank statement. This is an important fact because it brings out the status of the bank reconciliation statement. The items therein should be compared to the new bank statement to check if these have since been cleared. They also explain any delay in the collection of cheques, and they identify valid transactions recorded by one party but not the other. Since these items are generally reported to the company before the bank statement date, they seldom appear on a reconciliation.

What is Bank Reconciliation Formula?

Such a statement is known as a bank reconciliation statement. The final balance on the bank reconciliation statement, after all corrections and adjustments, is the actual “true” cash balance reported in the company’s balance sheet. Checks that have been issued by a business to creditors and credited in a cash book–but the payments have not yet been processed by a bank and so do not appear on a bank statement. In order to prepare a bank reconciliation statement, you need to obtain the current as well as the previous month’s bank statements and the cash book.

Month-end Procedure

Since it is ledger of cash and bank accounts, no posting for cash and bank accounts is necessary. Like other ledger accounts Cash Book is balanced at a regular interval (say daily or weekly). It is a crucial process that every company performs to ensure the accuracy of their financial records. It involves periodically comparing the company’s transaction https://personal-accounting.org/how-to-get-a-bank-statement/ records with the bank’s records to find any incorrect entries, missing transactions, or fraudulent activities. This way, it helps businesses ensure that their financial statements are accurate. For this reason, the only recourse is to prepare a statement to reconcile the balance shown by the cash book to the balance shown by the bank statement.

The transactions in a cash book are matched with the business’s cash and bank transaction records. Sometimes, it may happen that the transactions in the cash book don’t reconcile with the balance shown in the passbook. This is precisely why a Bank Reconciliation Statement (BRS) is prepared – it helps to reconcile the differences between bank transactions as recorded by the cash book and passbook. A bank reconciliation statement is a document that matches the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps determine if accounting changes are needed.

Bank Reconciliation Formula

That is to say, the amount of the balance will be the same while it is on different sides of the ledger. NSF fee for the rejected dishonored check of $10 charged by the bank. This document makes the auditors aware of the reconciled information at a later date. You come to know about such deductions only when you receive the statement from the bank. Thank you for reading CFI’s guide to Bank Reconciliation Statement Template. For more resources, check out our business templates library to download numerous free Excel modeling, PowerPoint presentation, and Word document templates.