Preparation of Bank Reconciliation

Preparing a bank reconciliation involves comparing the cash book (company's record of transactions) with the bank statement (record of transactions provided by the bank) to identify any discrepancies or errors. Here is a step-by-step guide to preparing a bank reconciliation:

Step 1: Gather the necessary documents
- Obtain the cash book, which contains all the cash transactions recorded by the company.
- Obtain the bank statement, which is provided by the bank and lists all the transactions related to the company's bank account.

Step 2: Compare the opening balances
- Compare the opening balance of the cash book with the opening balance of the bank statement.
- Note any differences between the two balances.

Step 3: Identify transactions recorded in the cash book but not in the bank statement
- Go through each entry in the cash book and check if it appears in the bank statement.
- If a transaction is recorded in the cash book but not in the bank statement, it is called an outstanding deposit or receipt.
- List all outstanding deposits or receipts separately.

Step 4: Identify transactions recorded in the bank statement but not in the cash book
- Go through each entry in the bank statement and check if it appears in the cash book.
- If a transaction is recorded in the bank statement but not in the cash book, it is called an outstanding withdrawal or payment.
- List all outstanding withdrawals or payments separately.

Step 5: Adjust for bank charges, interest, and errors
- Check the bank statement for any bank charges or interest earned that are not recorded in the cash book.
- Adjust the cash book accordingly by adding or subtracting these amounts.
- Also, check for any errors made by the bank or the company and make the necessary adjustments.

Step 6: Calculate the revised cash book balance
- Add or subtract the outstanding deposits/receipts and outstanding withdrawals/payments from the cash book balance.
- If there were any adjustments for bank charges, interest, or errors, include them in the calculation as well.
- This will give you the revised cash book balance.

Step 7: Compare the revised cash book balance with the bank statement balance
- Compare the revised cash book balance with the closing balance in the bank statement.
- If the two balances match, the bank reconciliation is complete.
- If there is still a difference, further investigation may be required to identify the cause of the discrepancy.

Step 8: Prepare a bank reconciliation statement
- Create a bank reconciliation statement that summarizes the differences between the cash book and the bank statement.
- Include the outstanding deposits/receipts, outstanding withdrawals/payments, and any adjustments made for bank charges, interest, or errors.
- This statement helps to reconcile the differences and provides a clear picture of the company's actual cash position.

By following these steps, you can accurately prepare a bank reconciliation and ensure the company's financial records align with the bank's records.