Want to understand the bank reconciliation statement? Read on.
A bank reconciliation statement is a financial document used by individuals or businesses to ensure that their records of transactions and account balances match those of their bank.
It is an essential tool for maintaining accurate financial records and detecting discrepancies or errors in financial statements.
Bank Reconciliation Layout and Sample
Here is what the bank reconciliation statement looks like, in terms of layout:
The sample bank reconciliation shows the true bank balance of a depositor. In the image above, $114,000 is the correct balance, which should also be in the accounting records (Assuming only one bank account). If the book reconciling items (e.g unrecorded deposits and others) remains to be reconciled, then the balance in the book, amounting to $100,000, is still incorrect.
Format of BRS
The format of the bank reconciliation statement usually starts with the Unadjusted bank Balance down to the adjusted bank balance.
All in between are the bank reconciling items.
Next, the book section generally begins with the adjusted book balance down to the Adjusted book balance.
All book reconciling items are also added or deducted from the unadjusted balance.
Read also: Automated bank reconciliation in excel.
Example Deep Dive
To understand fully what to do to prepare a reconciliation statement, click here for the bank reconciliation examples post.
Preparing a bank reconciliation statement
To Prepare a bank reconciliation statement, here are the steps:
- Gather Bank Reconciling Items
- Calculate Adjusted Bank Balance
- Gather Book Reconciling Items
- Calculate Adjusted Book Balance
Purpose of Bank Reconciliation Statement (BRS)
The primary purpose of a bank reconciliation statement is to show the discrepancies between the cash book balance and the bank statement balance
Components of BRS
A typical bank reconciliation statement consists of the following components:
|Bank Statement Balance (Unadjusted)
|The unadjusted ending balance as per the bank statement, provided by the bank at the end of a specific period.
|Book (or Cash) Balance (Unadjusted)
|The unadjusted ending balance of your company’s cash account as per your accounting records.
|Adjustments made to reconcile the two balances. Includes outstanding checks, deposits, bank fees, interest income, and other items that may differ between your records and the bank statement.
|Bank Statement Balance (Adjusted)
|The ending balance as per the bank statement after reconciliation adjustments.
|Book (or Cash) Balance (Adjusted)
|The ending balance of your company’s cash account as per your accounting records after reconciliation adjustments.
There are some bank reconciliation statement rules that need to be followed.
For instance, the adjusted book and bank balance must be equal after reconciliation.
It means that all reconciling items are correctly in place in the bank reconciliation statement.
Also reconciling items that go with the bank should not be included in the book reconciling items.
For example, deposits in transit and outstanding checks must go with the unadjusted bank balance.
Outstanding checks and deposits refer to transactions that you’ve recorded in your books but haven’t cleared in your bank account.
These should be adjusted on the reconciliation statement.
Errors and Discrepancies
If you identify any errors or discrepancies during the reconciliation process, investigate and correct them.
Common errors include data entry mistakes, bank errors, or timing differences.
Final Adjusted Balance
Once all adjustments and reconciliations are complete, the adjusted book balance should match the Adjusted bank statement balance.
If they match, it indicates that your bank reconciliation statement is accurate, and any discrepancies have been resolved.
Frequency of Preparing BRS
Bank reconciliations should be performed regularly, typically every month, to ensure financial accuracy.
If you’re unsure about certain transactions or face complex reconciliation challenges, it’s advisable to consult with financial professionals or accountants who can provide guidance and expertise.
After bank reconciliaiton, an accountant usually provides journal entries for book reconciling items.
Worksheet or Template or Form
Go here to get the the worksheet or bank reconciliation template.
Bank reconciliation is different from bank reconciliation statement because the latter represents the report while the former represents the process.