Understanding bank reconciliation statement

By Anthony Njoku

Introduction: On periodical basis, say monthly and at the end of every accounting year the bank account of a firm is made to agree (reconciled) with its bank statement of account, often shortened to “Bank Statement”.

What is bank reconciliation?

It is the process of matching the organization’s Cash Book with the bank statement.

It is the means of finding the differences between the cash book balance and the bank balance.

It is true that both balances would never be the same. It is then necessary and important to keep close watch on the bank account to guard against fraud. Failure to do this, will result in heavy loss of funds, and sometimes in embarrassing and unpleasant situations like indictment of staff.

Reasons for reconciliation of accounts

Some transactions might have been posted directly by the bank to the firm’s account which it was unaware of at the time the transactions were affected, e.g. Standing Order, Commission on Turnover, Bank charges, etc.

Bank might have erroneously credited or debited the firm with an amount due to another customer, which was yet undiscovered.

Differences arising due to overcasts or undercasts in the cash book, committed by the cashier.

Posting of wrong figures for some bank transactions in the cash book.

Some cheques recovered by the firm from its customers and duly debited to the cash book might not be credited to its bank account by the bank.

Some cheques issued by the firm to its supplier and lenders, and duly credited to the cash book but not debited to its bank account by the bank.

Some cheques might have been received by the firm and duly received but eventually dishonoured by the bank.

Reconciliation Procedure

There are stages in the preparation and presentation of bank reconciliation statement.

Comparing of bank statement with the cash book and striking off those transactions that appear in both of them.

Adjustments of the cash book (The items for which adjustments are necessary in the cash book are direct debits, direct credits, wrong postings previously made, casting errors, and returned cheques).

Reconciliation of the difference between the bank statement and the adjusted cash book. This difference is caused by uncredited cheques, unpresented cheques, cash lodged but wrongly credited to another customer’s account, and unidentified credit and or debits in the bank statement of account.

Documents required for bank reconciliation

Cash Book

Cheque Summary Register

Mandate/Cheque Stubs

Last Bank Reconciliation Statement

Anthony Njoku is the Chief Accountant, National Commission for Museums and Monuments

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