A bank reconciliation statement is a statement prepared by organizations to reconcile the balance of cash at bank in a company's own records with

the bank statement on a particular date. This statement is the most common tool used by organizations for reconciling the balance as per books of company with the bank statement and is made at the end of every month. The main objective of reconciliation is to ascertain if the discrepancy is due to error rather than timing.

The difference between the two records on a given date may arise because of the following:

Cheques drawn but not yet presented to the bank. Cheques received but not yet deposited in the bank. Interest credited and not recorded in the organization's books. Bank charges debited but not recorded in the organization's books.

Bank Reconciliation Statement process is being outsourced to professional accounting firms by large organizations. This helps them have an accurate view and also ensure that the company's bookkeeping is good. Accounting firms make monthly reconciliation statements for clients and help them determine any discrepancy.

What Is A Bank Reconciliation

Bank reconciliation is the process of matching and comparing figures from accounting records against those presented on a bank statement. Less any items which have no relation to the bank statement, the balance of the accounting ledger should reconcile (match) to the balance of the bank statement. Bank reconciliation allows companies or individuals to compare their account records to the bank's records of their account balance in order to uncover any possible discrepancies. Since there are timing differences between when data is entered in the banks systems and when data is entered in the individual's system, there is sometimes a normal discrepancy between account balances. The goal of reconciliation is to determine if the discrepancy is due to error rather than timing.

Comparing The Bank Statement To The Cashbook

When all of the receipts for a period have been written up in the cash receipts book and all of the cheque payments, standing orders and direct debits have been entered into the cash payments book, it is necessary to carry out any further checks possible on the cashbook. The most obvious check is to compare the entries in the cash receipts and cash payments book for the period, to the entries on the bank statement, although some care does need to be taken here.

Debits and Credits One of the most obvious differences between the cashbook and the bank statement is that the use of the terms debit and credit appear to be totally opposed to each other. If cash is paid into the bank by a business then for the business this is a receipt and is entered in the cash receipts book as a debit entry. However, in the bank statement this will be described as a credit and the balance will be a credit balance. This is due to the fact that if a business has money in the bank, the bank effectively owes the money back to the business and therefore the business is a creditor to the bank. Similarly, if the business writes a cheque out of the business bank account this will be entered in the cash payments book as a credit entry. From the bank's perspective however, this is known as a debit entry and any overdrawn balance is a debit balance.

How To Do A Bank Reconciliation

Summarised, the procedure for performing a bank reconciliation, in four simple steps: Pre Bank Reconciliation Example 1. Compare the cash receipts book to the receipts shown on the bank statement (the credits on the bank statement) - for each receipt that agrees, tick the item in both the cashbook and the bank statement. 2. Compare the cash payments book to the payments shown on the bank statement (the debits on the bank statement) - for each payment that agrees, tick the item in both the cashbook and the bank statement. 3. Any un-ticked items on the bank statement (other than rare errors made by the bank) will be items that should have been entered into the cash books, but have been omitted for some reason - these should be entered into the cashbook and then the amended balance on the cashbook can be found. To find the correct cashbook balance a ledger account is used for the bank with the original cashbook balance shown as the brought forward balance and any additional payments shown as credits and receipts as debits. This is illustrated in the example. 4. Finally, any un-ticked items in the cashbook will be the timing differences - unpresented cheques and outstanding lodgements - these will be used to reconcile the bank statement closing balance to the corrected cash book closing balance. Post Bank Reconciliation - Completing The Double Entry Opening Balances On The Cashbook & Bank Statement

In our example you may have noted that the opening balance on the cashbook agreed with that of the bank statement - there were no unpresented cheques or outstanding lodgements at the end of the previous period. This will not always be the case. If there were timing differences at the end of the previous period, then a bank reconciliation statement would have to be prepared. When comparing this period's bank statement and cashbook you will need to have the previous period's bank reconciliation statement in order to be able to tick last period's timing differences when they appear on the bank statement this period. Conclusion When Anne is preparing her bank reconciliation at the end of April, she is likely to find that the unpresented cheques at the end of March, cheque numbers 103572 to 103574 do appear on the bank statement in April. When they are found on the bank statement in April, they should then be ticked on the bank statement and on the opening bank reconciliation statement. The same will happen with the two outstanding lodgements at the end of March, when they appear on the bank statement in April.

Pass Book.: Definition: A Pass Book is a book given to account holders of banks and savings and loans institutions in order to document all transactions. Used predominately for a savings account. Examples: John opened a savings account at the bank. They gave him a passbook, and every time he makes a deposit, they write the date, time, and amount deposited in the passbook.

Cash Book:
Cash book is that subsidiary book in which accountant records all transactions relating to cash and bank receipts and payments. It is the one of important book of business because there is no a single business who does not do transaction relating to cash and bank. Important feature of cash book is that it is the book in which fulfill the need of cash and bank account. So, there is no need to open cash and bank account in ledger. We can just show the closing balance of cash book in trial balance.

Why You Should Do It

1. The main benefit of reconciling your bank statement is to make sure that you and the bank both have the same amounts and the same transactions recorded. It's a good way to catch bank errors (they do occur), unexpected bank fees, unauthorized charges to a debit card, and items you may have forgotten to record in your checkbook or debit register. Yes, you will catch those things if you pay very close attention to your transaction register at the bank's web site. However, if you rely solely on the transaction register at the web site, you will probably overlook something important.

What Can Happen if You Don't Reconcile

2. What if you write a $300 check, for example, and the recipient waits three weeks or three months to cash it? The bank has no record of that check until it's actually cashed, so it won't show up in their transaction register. Will you still remember that check is out there two or three months down the road? You will if you keep a check register and balance it to your bank statement each month. Otherwise, chances are good that you'll have an ugly surprise when that $300 check suddenly clears your bank account. ATM fees and unrecorded debit card purchases account for the vast majority of unpleasant surprises in personal checking accounts and unnecessary expenses in personal budgets.

Other Possibilities
3. Deposit discrepancies between bank balance and checkbook balance often occur in business bank accounts and occasionally in personal accounts. Human error is most often the cause in these cases, as a result of someone reading the cents incorrectly on a check. Transfers from one account to another can also throw off the balance of available funds. If you need to transfer money from savings to checking, for example, your checking account might have a smaller balance than you think if that transaction isn't actually completed on the bank's end.

Effects
4. Taking a peek at the bank's transaction register isn't sufficient, especially if you aren't diligent about recording your purchases in your own check register. It isn't enough to simply check the balance, either, to confirm that your mental tally is "about right." The bank's balance would look "about right" if one payment you made hadn't yet cleared the bank but an unauthorized debit for a similar amount was charged to your account. If the missing payment cleared the bank the next week, you could have an overdraft. While bank reconciliation is somewhat optional for a personal bank account, it is a required final step in a business bookkeeping cycle. If your book balance does not reconcile to the bank balance, your business books are not actually balanced, and that could lead to problems with the auditors or even the IRS.

Bank Fees and Errors

5. Banks have become experts at finding new fees to assess on checking account transactions. Will you notice if your bank charges you with a couple of new fees, tucked in between other

transactions in the web-based register? Probably not. But you'll definitely notice them if you reconcile your checkbook to your bank statement every month. Living, breathing humans enter the data from your check into the banking system, and they do make mistakes. If you don't reconcile your bank statement, you'll never know if you paid a little extra to the utility company or newspaper boy...or the bank.