Oldham Community Accountancy
Service
A Guide to Bank Reconciliations
What is a bank reconciliation?
A bank reconciliation is a process that all organisations should go through
to ensure that your cash balance per your bank statement agrees with the
cash balance per your cash book. The procedure should also be followed
with a computerised system.
Why should I do a bank reconciliation?
It is important for you to do a bank reconciliation to ensure that your
organisations records are complete.
By doing this you will uncover any errors or omissions. Generally these
errors or omissions will be in the cash book but occasionally the mistake
will be made by the bank and checking the cash book balance to the bank
statement will reveal any bank errors.
There are two main reasons why the balance on the cash book might not
equal the balance on the bank statement:
 Unrecorded difference – transactions that have not been entered in
the cash book, for example bank interest, charges, dishonoured
cheques.
 Timing difference – caused by the delay between an organisation
making transactions into or out of the bank account, and the time
that the bank actually makes the money transfer
How do I do a bank reconciliation?
A bank reconciliation begins by comparing all the transactions in the bank
statement for the period (generally a bank reconciliation will be performed
on a monthly basis) with the transactions that have been recorded in the
cash book.
As you match off items you find on the bank statement with the cash book
they should be “ticked off” to show they match.
For all unticked items on the bank statement you need to investigate the
accuracy of these items. Providing that the item is a valid item then it
should be entered into the cash book and ticked off in the cash book and
on the bank statement. For example there may be bank interest you have
received which has not been recorded in your cash book.
For any items that you do not understand or know the origin you should
enquire with the bank as to what they are.
Review the unticked items in the cash book and check for any errors you
may have in the cash book. Any errors found in the cash book must be
corrected. For example you may have banked a cheque for £100 which
has only been recorded in the cash book for £10, which needs to be
corrected to reflect the £100 actually banked.
The next step is to balance off your cash book and calculate the closing
cash book balance. You can double check for errors by sub totalling all
your analysis columns in the cash book and ensuring that they agree to
your total columns.
You should have now ticked off all items on the bank statement (except
for any bank errors), as a result the difference between the cash book
balance and the bank statement balance should be due to timing
differences (i.e. cheques that have not cleared the bank).
A bank reconciliation statement can now be produced starting with you
balance shown on the bank statement. All of the timing differences and
any bank errors should be listed with the resulting total agreeing to the
balance in the cash book. An example of bank reconciliation statement is
shown below:
Bank Reconciliation for the month ending 31st March 2010
Balance as per Bank Statement
£752.84
A
£250.50
B
£149.99
C
Adjusted Bank Balance (D = A plus B less C)
£853.35
D
Cash Book Balance brought forward
Add: Money received in the month
Less: Payments during the month
Cash book balance carried forward (H = E plus F less G)
£632.34
£525.50
£304.49
£853.35
E
F
G
H
Add: Outstanding Lodgements (receipts not yet
Date
Paying In Slip
No.
25/03/10
00014
28/03/10
00015
Less Unpresented Cheques (for payment)
Date
Cheque No.
Payee
24/03/10
00008
Mr Smith
30/03/10
00009
Mrs Jones
cleared)
Amount
£100.00
£250.50
Amount
£50.00
£99.99
What do I do if it does not reconcile?
The first thing to do is to look at the difference between the two balances.
This might point you in the direction of a particular deposit or payment
you have entered wrongly. If the difference is a multiple of 9, then it may
indicate that you have made a transposition error (i.e. you have entered
two figure the wrong way round, £105 instead of £150).
If you still have a difference you should think about taking a break from it
and then coming back and running through the process again.
Alternatively you could ask someone else to take a look at it, a fresh pair
of eyes may find an error that you have missed.
Remember do not try to fudge the figures because at some point the
difference will have to be found or the difference will get bigger and
bigger.
For more help and information
Please contact Oldham Community Accountancy Service
Tel: 0161 652 2344; E-mail enquries@ocas.org.uk
Website: www.ocas.org.uk