HOW TO PREPARE A BANK RECONCILIATION STATEMENT


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Before you begin the Bank Reconciliation Statement, you may need to first UNDERSTAND THE NEED FOR BANK RECONCILIATIONS. There are few points that you need to fully understand to enable you perform a proper Reconciliations. We shall take them one after the other;

1. RECEIPTS: When you receive money from your Customers/Partners into your Bank Accounts, in your BOOKS, you DEBIT the RECEIPTS while in the BANK STATEMENT, the Bank will CREDIT the Receipts. This is the reason you get CREDIT alert from your bank when someone pays you or when you deposit money.

2. PAYMENTS: When you make payments to your Vendors/Partners from your Bank Accounts, in your BOOKS, you will CREDIT the PAYMENTS while in the BANK STATEMENTS, the Bank will DEBIT the Payments.  This is the reason you get a DEBIT alert from your bank when you make withdrawals or pay someone. 

3. POSITIVE CASH BALANCE: In your BOOKS, it should be a DEBIT BALANCE while in the BANK STATEMENT it should be a CREDIT BALANCE.

4. NEGATIVE CASH BALANCE (OVERDRAFT): In your BOOKS, it should be a CREDIT BALANCE while in the BANK STATEMENTS it should be a DEBIT BALANCE. 

The table below summarizes it;

If the above Transactions are recorded accordingly then the Balances in the BANK BOOKS (as maintained by you) and the Balances in the BANK STATEMENTS (as maintained by the BANK) should be the same thing, otherwise, the need for Bank Reconciliation arises. 

STEPS FOR PREPARING A BANK RECONCILIATION STATEMENT;


1. The Bank Book should be maintained by you or your Accountant and should be up to date.

2. The Bank Statements should be obtained from the Bank

3. Compare the DEBIT ENTRIES in your BANK BOOK with the CREDIT ENTRIES in the BANK STATEMENTS. They should be the same transactions if properly recorded.  

It is possible to find TRANSACTIONS in the DEBIT SIDE of the BANK BOOK which are not in the CREDIT SIDE of the BANK STATEMENTS. You need to MAKE A LIST of all of them. These are known as UNCREDITED CHEQUES/LODGEMENTS. 

It is also possible to find TRANSACTIONS in the CREDIT SIDE of the BANK STATEMENTS which are not in the DEBIT SIDE of the BANK BOOK. You need to MAKE A LIST of all of them. These are known as RECEIPTS IN THE BANK STATEMENT ONLY. 

4. Compare the CREDIT ENTRIES in your BANK BOOK with the DEBIT ENTRIES in the BANK STATEMENTS. They should be the same transactions if properly recorded. 

It is possible to find TRANSACTIONS in the CREDIT SIDE in your BANK BOOK which are not in the DEBIT SIDE of the BANK STATEMENT. You need to MAKE A LIST of all of them. These are known as UNPRESENTED CHEQUES/DISHONORED CHEQUES/UN-EFFECTED DEBITS.

It is also possible to find TRANSACTIONS in the DEBIT SIDE of the BANK STATEMENTS which are not in the CREDIT SIDE of the BANK BOOK. You need to MAKE A LIST of all of them. These are known as PAYMENTS IN THE BANK STATEMENT ONLY/BANK CHARGES/OTHER CHARGES. 

5. Check for errors in the BANK BOOK. It is possible to find items/transactions which do not relate to that particular Bank in the Bank Book. These items are to be adjusted for before arriving at the ADJUSTED BANK BOOK BALANCE. The Adjusted Bank Book Balance is then used to prepare the Bank Reconciliation Statement. Where there are no errors, there will be no Adjusted Bank Book Balance. Just go ahead and use the BANK BOOK BALANCE to carry out the Reconciliation. 

Below is a simple format/template for Bank Reconciliation;


In conclusion. in the case of so many TRANSACTIONS causing the differences in Balances, there may be need to prepare a SCHEDULE for the different CATEGORIES of the TRANSACTIONS (e.g. UNPRESENTED CHEQUES, UNCREDITED CHEQUES, BANK CHARGES, etc). By doing so, your Schedule will show the following; 
(a) A List of all the Unprsented Cheques with their Details
(b) A List of all the Uncredited Cheques/Lodgements with their Details
(c) List of all Bank Charges/Direct Payments in the Bank Statements Only
(d) List of all the Direct Receipts in the Bank Statements Only

After preparing the Schedules, you will pick the sum totals of the Items above for you Bank Reconciliations as shown in the BANK RECONCILIATION Picture above. 

For easy Bank Reconciliation, you can DOWNLOAD OUR FREE TEMPLATE. Bank Reconciliation Template is Number 5 on the list. You can request for a more Customized template with "QUICK & EASY BUTTONS" for various functions.  If you have downloaded the Template then you need to follow these INSTRUCTIONS ON HOW TO USE ITGet the Video Tutorials. It will be easier for you to work with the Template. 

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