Bank Reconciliation Statement: Purpose and Preparation

Bank Reconciliation Statement is a record book that holds information about the transactions of a bank account. It is a statement that helps the account holders check and keep track of their funds and update it with the records of all the transactions they have made. 

The bank reconciliation statement aims to ascertain the differences between the bank passbook and the cash book. You will need to book the changes to the accounting records as required. 

A bank reconciliation statement is also known as a bank passbook. The balance in the bank passbook must tally with the proportion mentioned in the cash book. 

In the statement, you will see that all the deposits are shown in the credit column of the record. The withdrawals that you make are in the debit column of the statement. If the withdrawals exceed the amount you have deposited, there will be a debit balance or an overdraft. 

Bank reconciliation statements must be made at regular intervals for all bank accounts. This will ensure that a company's cash records are correct and accurate. 

If the statements are not prepared regularly, the cash balances might be lower than the expected number, resulting in bounced cheques and overdraft fees. You can create a bank reconciliation statement pdf which you can access anytime. 

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Bank Reconciliation Statement Rules

There are some rules which will help you avoid making any mistakes in the bank reconciliation statement. The rules will give you a basic framework to work when you are making the statement. You need to follow the bank reconciliation statement rules to create a correct account. 

Here are some of the rules you need to remember when you are preparing the bank reconciliation statement: 

• If any debit balance is in the cash book, it is referred to as the deposits of the business entity. 

• The debit in the cashbook should be equal to the credit in the passbook. 

• The credit balance in cash books points to the fact that there is an unfavourable balance. 

• The debit balance in the cash book means that there is a favourable balance. 

• Cheques that are issued but in any case presented are adjusted in the cash book of the company. 

Importance of Bank Reconciliation Statement

When you compare the company's cash book and the bank balance, the balance of the two will not tally. Hence, it is essential that you need to determine the cause for the difference and display them in the bank reconciliation statement. After you say the balance, you will need to tally the two proportions again. 

The bank reconciliation statement will help you explain the differences in the company's cash book and bank balance. There could be several reasons for a difference in the cash book and the bank passbook.

Some of the reasons could be: 

• When there is a difference in timing recording the transactions, this timing difference can be because of many factors like: 

1. A bank-issued cheque hasn't been deposited yet for payment. 

2. A Paid cheque, but the bank has not cleared it yet.  

3. Bank has made a direct debit from the customer's side. 

4. A cheque amount is deposited directly in the person's bank account.

5. The bank collects dividends and interest.

• Another reason could be the errors made by the company or by the bank. The error in the two balances can be made from the bank’s side or on the company's side. 

1. There are two kinds of errors. Firstly, the one where the company made an error while registering the transaction. 

2. Secondly, the one where the bank made an error while registering the transaction. 

Bank Reconciliation Statement Format

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Various steps need to be followed when making the bank reconciliation statement. The bank reconciliation statement format is simple and easy. You will be able to prepare a report properly if you follow the steps carefully and correctly. Here are the steps to prepare an accurate bank reconciliation statement:

• The bank statement compares the company's list of issued cheques and deposits to the cheque shown on the account. Identify the ones which are uncleared checks and deposits still in transit. 

• Use the cash balance shown on the bank statement and add all the deposits which are in transit. 

• Start deducting any outstanding checks, which will adjust the bank cash balance. 

• Next, add the company's ending cash balance and add all the interest which was earned and notes receivable amount. 

• If you see any outstanding checks, deduct them which will further adjust the balance of the statement. 

• Then, use the company's ending cash balance and add the interest earned and notes receivable amount. 

• Deduct any bank service fees, penalties and NSF check, and this will provide you with the adjusted bank cash balance. 

• After the reconciliation, the adjusted bank statement should tally with the company's cash balance. 

Bank Reconciliation Statement Example

ABC company is closing its book and is preparing a bank reconciliation for the following list:

• The bank statement has an ending balance of Rs. 3,00,000 on January 31, 2020, whereas the company's ledger shows an ending balance of Rs. 2,60,900. 

• The bank statement contains Rs. 100 service charge for operating the company’s account. 

• The bank statement contains an interest income of Rs. 20. 

• ABC issued checks of Rs. 50,000 that have not been cleared by its bank yet. 

• ABC deposited checks of Rs. 20,000, which didn't appear in the statement of the bank. 

• A check of Rs. 470 was issued to an official supplier, misreported in the cash payment journal as Rs. 370. 

• A note is receivable of Rs. The bank collected 9,800. 

• A check of Rs. 520 was deposited by the company, which has been charged back as non-sufficient funds.