A bank reconciliation statement is a schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositor’s accounting records. It is commonly assumed that both the bank and the depositor are maintaining independent records of the deposits, the checks, and the current balance of the bank account. Each month the depositor should prepare a bank reconciliation to verify that these independent sets of records are in agreement. This bank reconciliation statement may disclose internal control failures for example; unauthorized cash disbursements or failures to deposit cash receipts, as well as errors in either the bank statement or the depositor’s accounting records. In addition, the bank reconciliation statement also identifies certain transactions that must be recorded in the depositor’s accounting records and helps to determine the actual amount of cash on deposit. The benefit of reconciling the bank statement is confirming that the amount of cash reported by the respected company is consistent with the amount of cash shown in the bank’s records.
Steps in Preparing a Bank Reconciliation Statement
The specific steps in preparing a bank reconciling are as follows:
- Compare deposits listed in the bank statement with the deposits shown in the accounting records. Any deposits not yet recorded by the bank are deposits in transit and should be added to the balance shown in the bank statement.
- Arrange paid checks in sequence by serial numbers and compare each check with the corresponding entry in the accounting records. Any checks issued but not yet paid by the bank should be listed as outstanding checks to be deducted from the balance reported in the statement.
- Add to the balance per the depositor’s accounting records any credit memoranda is sued by the bank that have not been recorded by the depositor.
- Deduct from the balance per the depositor’s records any debit memoranda issued by the bank that have not been recorded by the depositor.
- Make appropriate adjustments to correct any errors any either the bank statement or the depositor’s accounting records.
- Determine that the adjusted balance of the bank statement is equal to the adjusted balance in the depositor’s records.
- Prepare journal entries to record any items in the bank reconciliation listed as adjustments to the balance per the depositor’s records.