Procedure for bank reconciliation

The procedure may be summarized as follows –

1. Compare the bank statement with the bank account in the cash
book. Remember to compare the debit of the bank account against he
credit of the bank statement, and the credit of the bank account
against he debit of the bank statement, Place a tick against those
items which appear in the both records .

2. Bring the bank account in the cash book up to date by entering any
items which appear on the bank statement but which have not yet
been entered in the bank account. Such items may be –

(a) Items debited on the bank statement, e.g. bank charges , standing
orders paid ,etc . These should be credited in the bank account in the
cash book

(b) Items credited on the bank statement, e.g. credit transfers and
standing orders paid directly into the bank. These should bed debited
in the bank account in the cash book.

3. Correct any errors in the cash book

4. Balance the cash book. The balance on the bank account is now the
true bank balance of the business and this figure will be shown in the
balance sheet

5. Prepare the ban reconciliation statement.

(a) Start with the balance shown on the bank statement.

(b) Add on any items that have been debited in the cash book but not
yet credit on the bank statement. i.e. amounts not yet credited

(c) Deduct any items that have been credited in the cash book but not
yet debited on the bank statement, i.e . cheques not yet presented

(d) Make any necessary adjustments for bank errors. Add back any
amounts debited in error by the bank and deduct any amounts
credited in error by the bank

(e) the resulting figure should equal the updated bank balance shown
in the cash book
The bank reconciliation could, alternatively, begin with the updated
cash book balance and end with eh bank statement balance. Where is
done, it is necessary to reverse the entries described above, i. e. Add
instead of deduct and vice versa