Bank Reconciliation Statements | Accounting for GCSE/IGCSE - Year 11 PDF Download

Purpose of a Bank Reconciliation Statement

What is the purpose of a bank reconciliation statement?

• When the bank statement balance differs from the cash book balance, a bank reconciliation statement is created by the business.
• The bank reconciliation statement clarifies the reasons behind the differing balances.
• Transactions present in the bank statement but not in the cash book can be added to the cash book.
• Conversely, transactions present in the cash book but not in the bank statement cannot be added to the bank statement.
• The bank reconciliation statement is crucial for highlighting and addressing such discrepancies.
• It includes information on unpresented cheques, uncredited deposits, and errors.

Preparing a Bank Reconciliation Statement

How do I prepare a bank reconciliation statement?

• Step 1: Update the cash book using information from the bank statement and calculate the new balance.
• Step 2: Initiate the bank reconciliation statement with the balance displayed on the bank statement, ensuring clarity on whether it represents available funds or an overdrawn amount. A debit balance indicates an overdraft.
• Step 3: Incorporate any deposits not yet credited, which are debit entries in the cash book absent from the bank statement. If multiple entries exist, aggregate their amounts into the left column of the reconciliation statement, then place the total in the right column. Add this total to the bank statement balance.
• Step 4: Include any bank errors that have reduced the bank statement balance, totaling them along with prior entries.
• Step 5: Deduct any outstanding cheques, representing credit entries in the cash book not reflected in the bank statement. If there are multiple entries, sum their amounts in the left column of the reconciliation statement and place the total in the right column. Subtract this total from the current amount in the right column of the statement.
• Step 6: Subtract any bank errors that have inflated the bank statement balance, accumulating them alongside prior entries.
• Step 7: Verify that this reconciled amount matches the bank balance in the cash book. If the balance is negative, it indicates a credit balance in the cash book.

Example of a bank reconciliation statement

Can I start the bank reconciliation statement with the balance shown in the cash book?

You can alternatively construct the bank reconciliation statement in reverse order by:

• Initiating with the balance indicated in the cash book.
• Adding the amounts of unpresented cheques.
• Subtracting the uncredited deposits.
• Ensuring the reconciled total matches the balance presented on the bank statement.