Bank Reconciliation Statement

A statement drawn up whereby items making up the difference in the Cash Book balance and
Bank Statement balance are entered.

Use of the Bank Reconciliation Statement

It is prepared regularly by businesses to check that the balance shown in the cash book (bank
column) agrees with the balance shown on the bank statement.

Definition of key terms associated with bank reconciliation statements

1. Unpresented cheques: cheques written by the depositor and are deducted from the cash
book, but have not yet been presented to the bank for payment

2. Outstanding deposits/Bank lodgement not yet credited (entered): these are payments
made to a firm, that have been deposited to their account at the bank but the amount does
not appear in the bank statement since the deposits have not yet been processed by the
bank. It however appears in the cash book

3. Standing order: payments made out of a payer’s bank, directly to the payee’s bank; at the
request of the payer. A case in which a firm instructs its bank to make regular payments
of fixed amounts at specified dates

4. Credit Transfer: an amount paid by someone directly into a firm’s bank account through
the banking system

5. Direct debits: a company may sign a direct debit authorising a creditor to withdraw a
fixed amount of money from the company account, this is debited to its account but the
entry is not made in the cash book

6. Dishonoured cheque: a cheque that is not accepted by the bank. A worthless cheque the
bank refuses to honour because there is insufficient funds in their account

7. Bank charges and interest: charges made by the bank for providing the services of a bank
account, there is no fixed amount for these charges. While interest is charged for making
funds available to a business when its account is overdrawn

8. Interest received: interest from savings or deposit accounts may be paid by the bank into
the current account and only shows when the statement is received

P.S: A deposit into the bank will result in a credit entry in the Bank Reconciliation Statement;
whilst a withdrawal will be debited in the Bank Reconciliation Statement.
Steps in preparing Bank Reconciliation Statement

1. Compare bank column of the cash book with the bank statement. Tick off all the receipts
and payments which can be found in both the cash book and the bank statement.

2. Bring the cash book up to date by entering the unticked bank statement items and
calculate the new balance.

3. Enter the unticked cash book items into the Bank Reconciliation Statement.

Two (2) Approaches to preparing the Bank Reconciliation Statement

Approach #1
NAME
BANK RECONCILIATION STATEMENT AS AT 31 DECEMBER 20XX
$ $
Balance as per Cash Book xxx
Add: Unpresented Cheques xxx
Credit Transfer xxx
xxx
xxxx
Less: Bank Lodgement not yet credited xxx
Bank Charges xxx
xxx
Balance as per Bank Statement xxxx

Approach #2
NAME
BANK RECONCILIATION STATEMENT AS AT 31 DECEMBER 20XX
$ $
Balance as per Bank Statement xxx
Add: Bank Lodgement not yet credited xxx
Bank Charges xxx
xxx
xxxx
Less: Unpresented Cheques xxx
Credit Transfer xxx
xxx
Balance as per Cash Book xxxx

Bank Balance and the Statement of Financial Position

The balance that appears in the Statement of Financial Position is the Cash Book balance after it
has been brought up to date.
Bank Reconciliation Statement and Overdrafts

If there is a bank overdraft (shown by a credit balance in cash book), the Bank Reconciliation
Statement is prepared; but the adjustments for reconciliation are opposite to those needed for a
debit balance.

NAME
BANK RECONCILIATION STATEMENT AS AT 31 DECEMBER 20XX
$ $
Overdraft as per Cash Book xxx
Add: Bank Lodgement not yet credited xxx
xxxx
Less: Unpresented Cheques xxx

Overdraft as per Bank Statement xxxx