Bank Reconciliation Statement Preparation
Bank Reconciliation Statement Preparation
Bank Reconciliation Statement Preparation
Bank Reconciliation
Bank Reconciliation
Introduction
Most companies or businesses have bank accounts through which they receive cash and
cheques deposited by customers/clients for goods and services these businesses offer to these
customers. Accordingly, the bank which a business has an account with must record of all
transactions between customers and any given business. Commercial banks usually send bank
statements to their customers (businesses and individuals). The bank statement is a document that
contains all financial transactions which took place between a bank and business during a given
period (usually one month). Similarly, a company or business must record all transactions affecting
the cash balance. Companies record these transactions in a special book known as the cashbook.
In most cases, bank statement and cashbook balances do not agree at any given time due
to some reasons. The main contributors to the difference in the two cash balances include time
lapses (caused by outstanding cheques), bank’s hidden charges and recording errors. Time
lapses make it impossible for both the bank and businesses to record transactions at the same time.
For example, a company may pay suppliers using a cheque today, yet the bank may take several
days to make the payment to the supplier (Weygandt, Kimmel, & Kieso, 2010). So, the supplier
must wait for the cheque to ‘mature.’ Recording errors include errors of both omission and
commission. For instance, if an accounting staff in a bank correctly records a cheque received
from the customer as Ksh. 1,250.00 yet, a corresponding accounting staff in a company records it
as 125.00 or 1520.00, an error of omission or commission occurs respectively which can cause
Bank reconciliation is a simple process which involves adjusting the bank statement’s
balance and the cashbook balance to make them read the same balance.
Example
Assume XYZ bank statement reads that the cash balance of company ABC is Ksh. 16,000, yet the
cash balance as per ABC’s books of accounts is Ksh. 12,000 as of January 31, 2018. Given the
Bank debited a ‘bounced’ cheque of Ksh. 510 from Mr. Reilly who is a customer of ABC company.
The bank collected a notes receivable of Ksh 1,020 from a customer of ABC company and the cost
One of the bank accounting staff correctly recorded by the bank as Ksh.1,250 yet the one of
ABC COMPANY
Bank Reconciliation
January 31, 2018
References
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Financial Accounting, 6e ISV Update. John