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Bank reconciliation statements.

A bank reconciliation statement is a document prepared by a company that shows its

recorded bank account balance matches the balance the bank lists. This statement
includes all transactions, such as deposits and withdrawals, from a given timeframe.

Many companies produce bank reconciliation statements regularly to ensure they’ve

recorded all their banking transactions properly and that their ending balance matches
the amount the bank says it has.

What is the purpose of a bank reconciliation statement?

Bank reconciliation statements can help identify accounting errors, discrepancies and
fraud. For instance, if the company’s records indicate a payment was collected and
deposited, yet the bank statement doesn’t show such a deposit, there may have been a
mistake or fraud.

Making sure a company’s and its bank’s listed balances align is also a way to ensure
the account has sufficient funds to cover company expenditures. The process also
enables the company to record any interest payments the account has earned or fees the
bank has charged.

The reconciliation process allows a business to understand its cash flow and manage its
accounts payable and receivable.

How often should you reconcile your bank account?

The frequency of bank reconciliation can vary based on your business’ specific needs.
Some businesses balance their bank accounts monthly, after receiving their monthly
bank statements. However, businesses with a high transaction volume or increased
fraud risk may need to reconcile more frequently, sometimes even daily. The key is to
establish a routine that best suits your business’s unique needs and financial activity.

If you’re using accounting software, it may give you the option to connect your bank
account, so transactions are automatically downloaded and categorized. This can save
you some time, although it’s important to periodically check everything manually to
ensure its accuracy and that there are no bank errors.

KT PRABHASHWARA – 0711336692 AAL – FINAL AC AND ETHICS

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How to do a bank reconciliation

Before sitting down to reconcile your business and bank records, gather your company
ledger and the current and previous bank statements. You can get a template online to
use for your bank reconciliation statement, or you can use a spreadsheet.

Step 1: Find the starting balance.

If you’re doing a reconciliation every month, your starting balance will be the final
balance from the previous month.

Step 2: Review the deposits and withdrawals.

Check your ledger’s recorded deposits, withdrawals and cleared checks against those
listed on the bank statement. Ensure all of the amounts match and investigate any
discrepancies. Everything listed on the bank statement should be included in your
records and vice versa.

Step 3: Adjust the cash balance.

In your ledger balance, be sure to account for deposits that have yet to clear, as well as
checks you’ve written that have yet to be cleared by the bank. The end result is the
adjusted cash balance, which ensures your ledger balance matches the bank statement
balance.

Step 4: Account for interest and fees

Search the bank statement for any interest your account earned during the month, then
add it to your reconciliation statement. Also, deduct any penalties or fees the bank
assessed that your ledger doesn’t list.

Step 5: Compare end balances.

After reviewing all deposits and withdrawals, adjusting the cash balance and accounting
for interest and fees, your ledger’s ending balance should match the bank statement
balance. If the two balances differ, you’ll need to look through everything to find any
discrepancies. These could turn out to be mistakes on your part or that of the bank.

KT PRABHASHWARA – 0711336692 AAL – FINAL AC AND ETHICS

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Reasons for Difference Between Bank Statement and Company’s Accounting

Record

When banks send companies a bank statement that contains the company’s beginning
cash balance, transactions during the period, and ending cash balance, the bank’s ending
cash balance and the company’s ending cash balance are almost always different. Some
reasons for the difference are:

• Deposits in transit: Cash and checks that have been received and recorded by the
company but have not yet been recorded on the bank statement.
• Outstanding checks: Checks that have been issued by the company to creditors,
but the payments have not yet been processed.
• Bank service fees: Banks deduct charges for services they provide to customers,
but these amounts are usually relatively small.
• Interest income: Banks pay interest on some bank accounts.
• Not sufficient funds (NSF) checks: When a customer deposits a check into an
account but the account of the issuer of the check has an insufficient amount to
pay the check, the bank deducts from the customer’s account the check that was
previously credited. The check is then returned to the depositor as an NSF check.

Nowadays, many companies use specialized accounting software in bank reconciliation

to reduce the amount of work and adjustments required and to enable real-time updates.

In the exam you are asked to prepare,

1. Adjusted cash book.
2. Bank reconciliation statement.

First you should know how to prepare the adjusted cash book and the bank reconciliation statement
with the format.

KT PRABHASHWARA – 0711336692 AAL – FINAL AC AND ETHICS

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Adjusted cash book
ඉ/චෙ/ච ේ (opening balance) xxx බැංකු ොස්ේු (Bank charges) xxx

ඍජු තැන්පු (Direct Deposits) xxx අයිරා චපාලී (interest on overdraft) xxx

ලාභාං (dividends) xxx ණය වාරික (Loan installment) xxx

නිකුත් කල අෙරු චෙක්පත් (cheque issue return) xxx ස්ේථාවර නිචයෝෙ මත චෙවීම් (Standing Orders) xxx

වැඩිපුර එකු කර ඇති චෙවීම් (over casted - Payment

side) xxx තැන්පත් කල අෙරු චෙක් (Cheque return - deposited) xxx

ලැබූ අෙල තැන්පු චපාලී (FD interest) xxx හර වැඩිචයන් එකු කිරීම (over casted - receipt side) xxx

හර අඩුචවන් එකු කිරීම් (under casted - receipt side) xxx බැර අඩුචවන් එකු කිරීම (Under casted - Payment side) xxx

බැර වැඩිචයන් එකු කිරීම (over casted) xxx චවනත් අචයකුචේ ගිනුමකට මාරු කිරීම (money transfers) xxx

පා/චේ ච ේෂය xx

xxxx xxxx

Bank reconciliation statement

Adjusted bank book balance XXX

(+)
Unpresented cheques

චෙක් පත් අංක 1 (cheque number) XXX

චෙක් පත් අංක 2 (cheque number) XXX
චෙක් පත් අංක 3(cheque number) XXX XXXX

බැංකුව විසින් සිදුකල වැරදි (bank errors – credit ) XXX

(-)
Unrealized cheques

චෙක් පත් අංක 1 (cheque number) XXX

KT PRABHASHWARA – 0711336692 AAL – FINAL AC AND ETHICS

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චෙක් පත් අංක 2 (cheque number) XXX

චෙක් පත් අංක 3(cheque number) XXX XXX

බැංකුව විසින් සිදුකල වැරදි (bank errors – debit ) XXX

Bank statement balance

XXXX

KT PRABHASHWARA – 0711336692 AAL – FINAL AC AND ETHICS