Bank Reconciliation Statement

Bank Reconciliation Statement is a process, That explains the difference on a specified date between the bank balance shown in an organization’s bank statement, as supplied by the bank and the corresponding amount shown in the organization’s own accounting records.

It should be completed at regular intervals for all bank accounts, to ensure that a company’s cash records are correct. Otherwise, it may find that cash balances are much lower than expected, resulting in bounced checks or overdraft fees. A bank reconciliation will also detect some types of fraud after the fact; this information can be used to design better controls over the receipt and payment of cash.

If there is so little activity in a bank account that there really is no need for a periodic bank reconciliation, you should question why the account even exists. It may be better to terminate the account and roll any residual funds into a more active account. By doing so, it may be easier to invest the residual funds, as well as to monitor the status of the investment.

Such differences may occur because

  • Cheques issued by the organization have not been presented to the bank.
  • Banking transaction, such as a credit received, or a charge made by the bank, has not yet been recorded in the organization’s books
  • Either the bank or the organization itself has made an error.

Bank Reconciliation Statement Example

Bank reconciliation statement

Sometimes it may be easy to reconcile the difference by looking at very recent transactions in the bank statement and the organization’s own accounting records (cash book) and seeing if some combination of them tallies with the difference to be explained. Otherwise it may be necessary to go through and match every transaction in both sets of records since the last reconciliation, and see what transactions remain unmatched. The necessary adjustments should then be made in the cash book, or reported to the bank if necessary, or any timing differences recorded to assist with future reconciliations.

For this reason, and to minimize the amount of work involved, it is good practice to carry out such reconciliations at reasonably frequent intervals. Reconciliations may be assisted by specialized accounting software.

Bank reconciliation statement is a statement prepared as part of the reconciliation which sets out the entries which have caused the difference between the two balances.