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 spreadsheet packages 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 and Cash 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 and Cash Analysis Book
  • Credit transfers – direct debits, standing orders, bacs – appear on the Bank Statement but have yet to be entered in the Bank and Cash 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 and Cash 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 and Cash Analysis Book with items paid out indicated on your bank statement. In your Bank and Cash 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 and Cash 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 and Cash Analysis Book – 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 and Cash Analysis Book column. Such items may include interest, bank charges, direct debits and standing orders. Once entered in your Bank and Cash 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 and Cash Analysis Book.

Step 5

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

Now fill in a Bank Reconciliation Form (download in Word).

Calculate the Bank and Cash Analysis 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 Bank and Cash Analysis Book is now completed and balanced. The next stage is to deal with anything that is in the Bank and Cash 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 and Cash Analysis Book balance is more than the adjusted Bank Statement balance:

  • You may have mistakenly ticked off an item in the Bank and Cash Analysis Book received column 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 and Cash Analysis Book paid column – 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 and Cash Analysis Book
  • In the Bank and Cash Analysis Book received column you have entered something more than once or overstated its value

If the adjusted Bank Statement balance is more than the closing Bank and Cash 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 and Cash Analysis Book received column which has cleared and so falsely appears in the outstanding receipts list
  • You have not entered in the Bank and Cash Analysis Book received column an item credited by the bank ie. interest
  • In the Bank and Cash Analysis Book paid column 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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