What are the process of preparing bank reconciliation?


The process of preparing bank reconciliation
The following boxes summarise six steps that are usually taken in preparing bank reconciliation.

Steps in Bank Reconciliation
Step One

Compare deposits as shown in the Bank Statement with deposits according to the Cash Book.  Tick off items recorded in both records and establish if there are any deposits in transit for the current month.  Normally, deposits in transit at the end of the previous month will show up in the bank statement on the first few days of the current month.  Tick off these ones as well, because although they caused a difference in the previous month, they cease to have an effect by their appearing on the Bank Statement.

Step Two

Compare cheques paid as per the Bank Statement with cheques written during the month and recorded in the Cash Book.  Find out if there are outstanding cheques.  These are cheques issued which the payees have not yet presented to the bank. Verify that outstanding cheques during the previous month have cleared through the bank during the current month, otherwise they remain outstanding cheques. Reference to cheque numbers will guide as to which ones remain outstanding.

Step Three

Find if there are any credits on the Bank Statement not recorded in depositor's Cash Book.  Enumerate these. For example, credit transfers, bank interest income, etc.

Step Four

Find if there are any debits on the bank statement not in depositor's books.  Enumerate these as well.

Step Five

Record all items appearing on the Bank Statement which ought to be recorded in the depositor's Cash Book. All items except those resulting from time difference and errors by bankers must be adjusted in the books of the depositor before a bank reconciliation statement is prepared. This step will result in a Cash Book with an adjusted balance.

Step Six

Prepare a Bank Reconciliation Statement. A bank reconciliation statement contrasts the Cash Book balance with the balance as per Bank Statement



Items which explain the difference between the Cash Book balance and the Bank Statement balance are known as reconciling items. If all adjustable items have been recorded in the depositor’s books, the only reconciling items will be those resulting from time difference and errors by bankers.

It is not unusual however, for examiners to require the preparation of a bank reconciliation statement before adjustments have been made in the Cash Book. In such circumstances, all items including adjustable items become reconciling items.

A bank reconciliation statement must have a title with the following components:

1. the name of the business,
 2. the title of the statement, in this case “Bank Reconciliation Statement”, and
3. the period covered by the statement, such as “for the month ending 31st July, 20X1”.

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