Bank reconciliation

This factsheet currently refers to manual/paper-based accounts books. It will very shortly be revised to refer to Microsoft Excel and will assume a knowledge of basic Excel (or similar spreadsheets like Google Sheets, Apple Numbers or OpenOffice Calc).

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Your bank statement details payments made into your account and withdrawals from your account. You might think that the total on your bank statement would equal that in your Bank Analysis Book, but there are several reasons why the two balances differ:

  • Cheques have been issued, but are still to be presented
  • Items have been paid into your account, but have not yet appeared on the Bank Statement
  • Interest appears on the Bank Statement but has yet to be entered in the Bank Analysis Book
  • Credit transfers – direct debits, standing orders, bacs – appear on the Bank Statement but have yet to be entered in the Bank Analysis Book
  • There are errors in your organisation’s book-keeping, or the bank has made a mistake – banks make mistakes too!

The factsheet assumes monthly bank reconciliation and single entry bookkeeping. It also assumes a knowledge of basic bookkeeping. Note that CASHFACTS uses the term Bank Analysis Book – instead of Cash Analysis Book.

To begin your bank reconciliation, first complete these first four easy steps. Go back one step if you think you may have gone wrong.

Step 1

Compare entries in your Bank Paid Analysis Book with items paid out indicated on your bank statement. In your Bank Paid Analysis Book put a tick against each cheque payment that appears on your bank statement. Now place a tick against the corresponding payment on your Bank Statement.

Step 2

In your Bank Received Analysis Book, put a tick in the ‘Banked’ column for each deposit indicated on your Bank Statement. Now place a tick against the corresponding deposits on your Bank Statement.

Step 3

Don’t forget to check and tick – both on the Bank Statement and in the Bank Analysis Books – outstanding items from the previous bank reconciliation which have now cleared the bank.

Step 4

Now, look at the bank statement. Are there any items without a tick? If there are any, they should be entered in the corresponding Bank Analysis Book. Such items may include interest, bank charges, direct debits and standing orders. Once entered in your Bank Paid Analysis Book tick these items off on your Bank Statement.

When these four steps have been completed, all items on your Bank Statement will be in your Bank Analysis Books.

Step 5

First rule off the Bank Analysis Books and add up the columns. Then ‘crosscast’ to ensure that the adding-up is correct.

Now fill in a Bank Reconciliation Form (Word).

Calculate the Bank Book Closing Balance for the month as follows:

Balance brought forward (b/f)

+

Receipts for the month


Payments for the month

=

Balance carried forward (c/f)

The Analysis Book is now completed and balanced. The next stage is to deal with anything that is in the Analysis Book but not on the Bank Statement.

What if your bank reconciliation does not work? Listed below are possible causes.

If the closing Bank Analysis Book balance is more than the adjusted Bank Statement balance:

  • You may have mistakenly ticked off an item in the Bank Received Analysis Book which has yet to clear the bank – and so has been omitted from the outstanding receipts list.
  • You have not ticked off an item in the Bank Paid Analysis Book – it appears in the outstanding cheques list even though it has been cashed.
  • Bank charges, a standing order etc. has not been entered in the Bank Paid Analysis Book.
  • In the Bank Received Analysis Book you have entered something more than once or overstated its value.

If the adjusted Bank Statement balance is more than the closing Bank Analysis Book balance:

  • You have mistakenly ticked off an outstanding cheque and so it has been omitted from the outstanding cheques list.
  • You have failed to tick off an item in the Bank Received Analysis Book which has cleared and so falsely appears in the outstanding receipts list.
  • You have not entered in the Bank Received Analysis Book an item credited by the bank ie. interest.
  • In the Bank Paid Analysis Book you have entered something more than once or overstated its value.

Other errors:

  • There is an arithmetical mistake in your bank reconciliation.
  • If the difference is exactly divisible by 9, you have probably transposed a figure eg. £631 instead of £136 or £49.23 instead of £42.93.
  • There is a mistake on the Bank Statement – banks make mistakes too!

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