Bank Reconciliation Statement

Reason For A Bank Reconciliation Statement

Due to the timing of the recording of the receipts and payments in the Cash Book from the recording by the bank, very frequently, a Bank Statement balance may not agree with the balance in the Cash Book.

Hence, a bank reconciliation statement needs to be drawn up to reconcile the difference in the balance between the Bank Statement and the Cash Book.

Debit Side Of The Bank Statement:

· Bank charges and commission;

· Bank overdraft interest;

· Cheques from customers that have been dishonoured;

· Telegraphic transfers made by the company;

· Standing order instruction

Credit Side Of The Bank Statement:

· Interest and dividends received by bank on behalf of the company;

· Re-presented cheques which are cheques earlier dishonoured now represented for payment;

· Credit transfers/amount paid direct by debtors to the company’s bank account.

Main Reasons For Timing Difference

· Unpresented cheques:

Items on the credit side of the Cash Book not in the Bank Statement.

Cheques drawn in favour of creditors and credited in the Cash book may not yet been presented by the creditors for payment;

· Lodgements Not Credited:

Items on the debit side of the Cash Book not in the Bank Statement.

Mainly cheques received and banked but not recorded by the bank because these cheques have not been cleared by the clearing system;

· Payments on Bank Statements not in the Cash Book

Example like credit transfers and standing order, bank interest, bank overdraft interest and charges;

· Cheques dishonoured entered in the Bank Statement not in the Cash Book;

· Dividends received, bills receivables, etc collected by the Bank and recorded in the Bank Statement but not in the Cash Book

· Bills payables paid by the bank and recorded in the Bank Statement but not in the Cash Book

Salient Points to note:

· Bank reconciliation is done at specific date normally done monthly;

· Once prepared periodically, it makes easier the work of future bank reconciliation, as we only need to check/verify the outstanding cheques or un-credited lodgements after the bank reconciliation date.