Principles of Accounting: Preparation of bank reconciliation statement

We have already looked at what bank reconciliation statements are and why we need them
Here we will look at steps required to prepare them and their format
First it must be pointed out that the Bank Column in the Cash Book like all of the business’s assets have a debit balance
From the bank’s perspective however the bank account has a credit balance
When the business makes a deposit or receives are transfer
It’s account is credited by the bank
Crediting an account increases its bank balance i.e. the amount the bank owes/ or is holding on behalf of the business
When the business makes a withdrawal or makes a transfer
Its bank account is debited by the bank
Debiting an account reduces the business’s bank balance i.e. the amount the bank owes/ or is holding on behalf of the business
A bank statement balance is frequently shown as a positive balance on the bank statement
For now we will assume the business has a normal balance:
This means a debit bank balance from the business’s perspective as shown in the cash book
and a credit balance as shown on the bank statement

First the business must obtain a copy of the current bank statement
These days it simply means downloading the statement via the bank’s online banking portal
It might also means obtaining it at the bank, receiving it via email etc
However it is obtained the business must have an up to date bank statement before the whole process begins
Next the business must update its cash book to record items that we did not know about
These include:
- Dishonored cheques i.e. cheques given to us by debtors but were for whatever reason not honoured by their banks
- Bank charges and transaction charges
- Unknown RTGS/SWIFT/ZIPIT transfers ( Giro Transfers in other countries) from our customers
- Any other items on the bank statement that have not yet recorded in the cash book
The updated Cash Book has been prepared the two balances are compared again
If there are still different a bank reconciliation statement is prepared

Since we are dealing with the bank column of the Cash Book here it is customary to ommit the Cash and Discount columns
The result is the Cash Book is presented as a normal T account

Bank Reconciliation Statement as at 31 December 20x7
Balance as per cash book	xxx
Add unpresented cheques	xxx
Add pending RTGS transfers to creditors	xxx
	xxxx
Less Uncredited Lodgements	(xxx)
Less pending credits e.g. uncredited RTGS etc	(xxx)
Balance as per bank statement	xxx

This is the most common way of presenting bank reconciliation statements
We start with the Updated Cash Book Balance and end with the Balance as shown on the current bank statement
Simple maths however means there is another way of presenting a Bank Reconciliation Statement
We could do it in reverse, start with the Balance as per bank statement and end with the balance as shown in the updated Cash Book Instead
The result:

Bank Reconciliation Statement as at 31 December 20x7
Balance as per per bank statement	xxx
Add Uncredited Lodgements	xxx
Add pending credits e.g. uncredited RTGS receipts etc	xxx
	xxxx
Less unpresented cheques	(xxx)
Less pending RTGS transfers to creditors	(xxx)
Balance as per Cash Book	xxx

It is entirely up to you which presentation you prefer
The fact remains that if there are no errors/mistakes in the records a bank reconciliation statement will prove the difference
Between the bank balance as shown in the Cash Book and the one on the bank statement is easily explained by the fact that the bank is yet to record some items we have already recorded in the updated cash book

The figure to show under Current Assets in the Statement of Financial position is the updated Cash Book bank balance
You should never use the old figure or the bank statement balance as they are both inaccurate according to current information

To access more topics go to the Principles of Accounting Notes.

Principles of Accounting: Preparation of bank reconciliation statement- Updated 2024