Bank reconciliation statement is prepared for accounting purpose as it indicates the differences between bank statement balance and balance in depositor’s accounting record.
The statement which is prepared by the depositor at a particular date to reconcile the differences of the balance as shown in the bank statement and balance shown in the depositor’s books of accounts is called the bank reconciliation statement.
Definition of Bank Reconciliation Statement
A bank reconciliation is a schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositor’s accounting record.
Bank reconciliation statement or schedule, is a schedule the depositor prepares to reconcile or explain, the difference between the cash balance on the bank statement and the cash balance on the depositor’s books.
A business concern prepares a bank reconciliation statement to ascertain correct cash balance and to correct cash balance in the ledger passing necessary journal entries.
Bank Reconciliation Statement Template
Steps in preparing a bank reconciliation statement
The following steps are to be taken in preparing a bank reconciliation statement:
- Deposits mentioned in the bank statement and deposits are shown in the depositor’s books of account are to be compared. Any deposit not recorded in the bank account would be treated as the deposit in transit and it should be added to the balance shown on the bank statement.
- The encashed cheques should be arranged chronologically and each of them is to be compared with the cash disbursement journal. Cheques issued but not paid by the bank termed as outstanding cheques should be listed and the amount of these cheques should be deducted from the balance shown on the bank statement.
- A credit memo issued by the bank, if not recorded in the books of the depositor, should be added to the depositor’s cash balance. For example, collection note receivable Tk.2,500 shown in the bank account. Bank sends a credit memo for this to the depositor. In this case, the amount mentioned in the credit memo $2,500 he added to the cash balance of depositor’s account.
- The debit memo issued by the bank, if not recorded in the depositor’s book, should be deducted from the cash balance shown in the depositor’s account.
- Bank statement and depositor’s account are to be adjusted properly for rectification of errors if any.
- It is to be ensured that adjusted cash balance of bank statement and an adjusted cash balance of depositor’s ledger account are equal.
- Adjusting journal entries are to be passed for those items which are added to and deducted from the cash balance of depositor’s ledger account in the bank reconciliation statement.
Two-part bank reconciliation statement
Modem accountants prepare bank reconciliation statement under this two-part bank reconciliation method. This helps in achieving the object of reconciliation on one hand and knowing the bank balance on the other.
Besides, adjustments to be made in the books of depositors can clearly be known by this type of reconciliation statement.
This method of preparing bank reconciliation statement is termed as two-part bank reconciliation statement.
Under this method, a bank reconciliation statement is prepared taking balances of bank statement and cash book simultaneously in ‘T’ form or statement form.
The transactions which have been recorded in the depositor’s cash book, but not recorded on the bank statement are adjusted with the balance of bank statement.
On the other hand,
The transactions which have been recorded in the depositor’s bank statement or bank account but not recorded in the depositor’s book of accounts are to be adjusted with the cash balance of depositor’s account.
It may be mentioned that under this process two adjusted balances will be equal. If both the balances do not agree, it is evident that the adjustments were not made correctly.
A specimen of two-part reconciliation bank statement
The mechanism of two-part bank reconciliation statement in the following diagram;
Depositor’s book amended the method
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This amended method is a realistic approach to presenting bank reconciliation statement correctly, easily and briefly.
Undo- this method depositor’s account is prepared to ascertain its correct cash balance before preparing bank reconciliation statement.
The transactions which have been shown in the depositor’s bank statement only are recorded in the account of the depositor to ascertain corrected cash balance.
Bank charge, interest on the deposit, direct deposit into the bank by the debtor, dividend realized by the bank, payment made by the bank, dishonored, discounted bill etc.
The corrected cash balance ascertained through the preparation of depositor’s amended cash book will be same as cash balance shown on the bank statement.
Bank reconciliation statement is prepared with that corrected cash balance.
The transactions which have been shown to the depositor’s account but not recorded on the bank statement are recorded in the bank reconciliation statement.
Single Balance Method
This is not quite a scientific method.
Nevertheless, sometimes, in problems, cash balance of only one party i.e. depositor’s cash balance or cash balance of bank statement is mentioned.
In such case, sometimes bank reconciliation statement is prepared under single balance method.