This document discusses how to reconcile a business's bank balance recorded in the cashbook with the balance shown on the bank statement. It is a two-phase process: 1) Adjusting the cashbook balance by adding credits and deducting debits made by the bank that were unknown, and 2) Creating a reconciliation statement that reconciles the adjusted cashbook balance with the bank statement balance by adding outstanding deposits and deducting uncleared checks. The goal is to make the cashbook and bank statement balances agree by accounting for any discrepancies between the two records.

1. BANK RECONCILIATION

2. Objective
To make the business’ bank balance
To make the business’ bank balance
on the Cash book agree with the
on the Cash book agree with the
Bank’s bank balance
Bank’s bank balance
This is accomplished in two phases:
The Adjusted Cashbook
The Reconciliation Statement

3. The Adjusted Cashbook
This is done so as to update
the bank a/c in the Three Column Cashbook
with the transactions (activities), which the
BANK performed on your behalf, but ‘unknown’
to you
[as shown on your BANK STATEMENT].

4. Phase 1: How to adjust the
Cashbook
To the Balance c/d of the current Cash Book
First
Add all credits made by the bank , which the business did
not know about before.
Credit transfers interest received
Second
Deduct all debits made by the bank, which the business did
not know about before.
Standing orders bank charges
This is the Adjusted Balance c/d

5. The Reconciliation Statement
This is done so as ensure
the Cashbook agrees with the Bank Statement
by reversing all the transactions (activities) the
business recorded in the Cashbook,
but the Bank Statement
shows no evidence
that those activities actually occurred.

6. Phase 2: The Reconciliation
To the Adjusted Balance c/d of the Cash Book
First
Add all those cheques, which were written by the
business, but were never presented to the bank to be
honoured (debited) during the statement period.
Second
Deduct all those deposits, which the business had
recorded, but which never reached the bank during the
statement period so that they could be credited.
This balance should be the same as the balance on the Bank Statement

7. Format of the Adjusted Cashbook
$ $ $
Cash book bal c/d xxx
add Credit transfer c
Interest received c
w
f
less Bank charges
f
Standing order
m
Adjusted cashbook bal c/d k

8. Format Reconciliation Statement
$ $ $
Adjusted Cash book bal xxx
c/d
add Unpresented cheques c
Other adjustments c
w
f
less Uncredited deposits
f
Other adjustments *
m
Balance per Bank Statement
k

9. terminology
••Reconcile
Reconcile -to make things agree
-to make things agree
••Standingorder ––an instruction to the banker to pay aaspecific party aaspecified
Standing order an instruction to the banker to pay specific party specified
sum for aaspecified period on aaregular basis [monthly]
sum for specified period on regular basis [monthly]
••Credittransfer ––aadeposit made to one’s account directly through the banking
Credit transfer deposit made to one’s account directly through the banking
system
system
••Bankcharges ––fee or penalties incurred upon using the banking facilities
Bank charges fee or penalties incurred upon using the banking facilities
••Dishonouredcheque ––aacheque which the bank could not cash (honour) because
Dishonoured cheque cheque which the bank could not cash (honour) because
of aatranscription error or insufficient funds [RD]
of transcription error or insufficient funds [RD]
••Unpresentedcheques ––cheques which creditors have not presented for payment
Unpresented cheques cheques which creditors have not presented for payment
••BankStatement ––aareport from the bank showing the dated transaction and
Bank Statement report from the bank showing the dated transaction and
activities that occurred to your account over the period. It generally uses aa
activities that occurred to your account over the period. It generally uses
continuous balance.
continuous balance.
••UncreditedDeposits ––deposits which have not been lodged/ recoreded on the
Uncredited Deposits deposits which have not been lodged/ recoreded on the
bank statement.
bank statement.