Accounting & Financial
Analysis 1
Lecture 5
Bank Reconciliation
Bank Reconciliation
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A Bank Reconciliation is the
balancing of
the Bank a/c balance as appears in the
general ledger to
 the statement received from the bank.
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A bank reconciliation is generally
prepared each month following the
receipt of the bank statement.
Bank’s point of view
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The bank statement is a listing of all the
transactions that have been processed
by the bank to the business account
showing the balance from the point of
view of the bank. T
he balance of the business account is an
amount of money that the bank owes to
the business.
Therefore the bank shows the balance on
the statement as a “credit” (liability,
amounts owing by the bank).
The business point of view
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The amount of cash held in a bank is shown as a
current asset in the Proprietary Ledger (Balance
sheet) of the business and is recorded as a
“debit” balance.
Since all assets need to be verified for their
accuracy the bank reconciliation will confirm
that the amount shown as a current asset is
correct and truly exists.
It is important to make sure that the financial
records of the business match those of the
bank.
The business generally asks the bank to post
the statement as close to the end of month as
possible so a reconciliation can be make before
closing the month accounts.
Unusual items
Bank charges
 Bank Interest
 Dishonoured cheques
 Errors
 Unpresented cheques
 Deposits in transit
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The process of preparing a
bank reconciliation

The process of preparing a bank reconciliation is prescribed by the
organisational policy and procedures and is generally as follows:
1.
The bank reconciliation statement is to be prepared monthly and should
form part of the management report presented to the meeting on the 10th
day of each month (or other designated timeline).
Compare the bank column of the cash payments journal to the debit side
of the bank statement. Ticking all the amounts that balance.
Compare the bank column of the cash receipts journal to the credit side
of the bank statement. Ticking all the amounts that balance.
Highlight any amounts that appear in the cash journals but not in the
bank statement. (these will appear as reconciling items)
Process items that appear in the bank statement but not in the cash
journals (such as bank charges, bank interest, dishonoured cheques
etc.)
2.
3.
4.
5.
The process of preparing a
bank reconciliation - 2
6.
7.
8.
9.
10.
Any amounts that appear in the bank statement that need to be
investigated should be referred to the appropriate staff member before
processing to the cash journals. (these could be unknown debits or
credits, amounts that do not match up – same cheque no. but different
amounts)
Total all columns of the cash receipts and cash payments journals.
Transfer all column totals of the cash receipts and cash payments
journals to the appropriate ledger accounts.
Establish the balance on the general ledger bank account.
Prepare the bank reconciliation statement as follows:
Bank Reconciliation
Statement

Bank Reconciliation Statement as at ………….
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Balance as per bank statement $…….
Add deposits that are not yet on bank
statement
$…….
Less unpresented cheques (list cheque no.
and amount)
($……)
Balance as per general ledger bank a/c
$……..
Common Bankrec
adjustments

1.
Whilst doing the reconciliation it is
common to find various
adjustments that need to be made.
The following could be some of the
required adjustments:
The bank statement includes bank charges that have not
been processed to the cash payments journal. These
charges should be included in the cash payments journal
before closing the journal and transferring the totals to
the general ledger accounts.
Common Bankrec
adjustments - 2
2.
The bank statement includes revenue (like bank interest)
that has not been processed to the cash receipts journal.
This revenue should be included in the cash receipts
journal before closing the journal and transferring the
totals to the general ledger accounts.
3.
Dishonoured cheques (cheques returned, not paid out)
account will be debited by the bank for the cheque value.
If a customer gives you a cheque which you entered into
the cash receipts journal and deposited into your bank
account but the cheque was not honoured by the bank,
you then have to reverse the original entry into your cash
receipts journal by deducting the amount from the
debtor’s column. The amount deducted is to appear in
brackets.
Common Bankrec
adjustments - 3

Correction of errors
this is when the bank shows a
different amount to the one entered in
the cash journals.
 Corrective action: First you reverse the
entry in the same column as original –
amount in brackets, then you enter the
correct amount as a separate entry
with same reference number.
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Summary
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The general ledger bank account shows the balance after
all transactions processed by the business.
This balance will be after all cheques paid out (even the
ones that have not yet been presented to the bank for
payment by the customer) and all deposits made (even the
ones that have not yet been recorded by the bank).
Therefore in order to view each of the transactions that
affected the bank a/c during the month the comparison
has to be between the Cash Journals (Receipts &
Payments) and the bank statement.
Process of Bank
Reconciliation
See MANUAL example on web
Do MYOB Bank Reconciliation