Bank Reconciliation

What Is a Bank Reconciliation?
To make sure that all transactions in your business have been correctly accounted for, you will need to reconcile the position as shown by your cash book records with that shown by your bank’s records.

This process is known as a “bank reconciliation”.

The purpose of the bank reconciliation is to reconcile the balance showing in your books with those shown in the bank’s books where it relates to all transactions that have gone through the bank accounts.


2 Main Reasons for Differences in the Reconciliation
Two main reasons for any difference in the positions are:

  1. Unpresented checks: These are checks which you had written out in your business and entered into your books as having been paid, but they were not yet showing in your bank's records via the bank statement. This would come about because it sometimes takes a few days for the checks to be presented by the people you pay and then for those checks to be shown up as a charge against your bank account.

  2. Deposits not credited: These are deposits you had banked into your business and subsequently entered into your books as income coming in. However they had not yet been credited as a deposit by your bank to your bank account. This would be because even though you had received the deposits they may still be sitting on your desk waiting to be taken to the bank to deposit.


How to Prepare the Bank Reconciliation

 You need to do a bank reconciliation to verify that the amount of cash you think you have in your bank account ties in with what the bank says you have.

 The balance in your cashbook will never agree with the balance showing in the bank statement (the bank account books) because of the delays in the bank receiving the deposits you have made and the delays in having checks written out by you presented by those you sent your checks out to.

Steps to follow for compiling a bank reconciliation:

  • Write up your cashbook so it is as up to date as possible.

  • Check off from your cashbook against your bank statement all the checks you have written and the deposits you have received.

  • Check off against the bank statement all the deposits you have made and all the payments of checks you have paid out.

  • After that is done, prepare a list of all deposits in transit. These will be the deposits not yet credited.

  • Prepare also a list of all the checks that you have sent out but which do not appear yet in the bank statement. These will be your unpresented checks.

  • Record any bank charges or credits that have come through the bank statement, but are not yet entered into your cashbook. They include bank fees etc

  • Complete your cashbook to arrive at your end cash balance and then compare that balance against the bank statement.

  • Finally, by taking into account the bank statement balance and providing for deposits not credited, and unpresented checks, you should be able to reconcile the differences and arrive at the same balance that the bank statement has.