How to Prepare Bank Reconciliation Statement

Knowing how to prepare bank reconciliation statement is very useful when the company’s cash balance and the cash balance at the bank do not match with each other. This may occur due to various reasons like outstanding cheques, deposits in transits and various other errors. Therefore, organizations tend to prepare bank reconciliation statements in order to detect the differences in the accounting records. 


How to prepare bank reconciliation statement – Example

Following example illustrates the ways in which the cash balances in the bank account and the company records are adjusted using the bank reconciliation statement. This is done using the information given below.

XYZ Company’s bank statement which is dated at Dec 31, 2013 indicates a balance of $24,594.72 and the company’s cash account indicates a balance of $23,196.79. Following additional information is also available:

  • Below cheques are outstanding which has been issued by the company to its customers.

bank reconciliation statement 01

  • An amount of $400.00 which has been deposited on Dec 31 does not appear on bank statement.
  • The bank returned an NSF cheque of $850 with the bank statement.
  • The bank service charges are amounted to $50.
  • Company has earned an interest income of $1,237.22 which has been recorded only in the bank account.
  • The bank has collected a note receivable on behalf of the company an amount of $550, which includes $50 interest income. The bank charged a collection fee of $10.
  • A deposit of $430 was incorrectly entered as $340 in the company’s cash records.

Bank Reconciliation Statement

How to prepare bank reconciliation statement
bank reconciliation statement 03

Importance of Bank Reconciliation

  • When preparing the bank reconciliation statement, it helps to identify the errors in the accounting records of the bank or company.
  • Further, it can be used as a control mechanism of cash transactions including the deposits and withdrawals.
  • It is useful to make comparisons between the company maintained records and the bank account details.
  • When the statements are prepared monthly, it will be helpful for regular monitoring of cash flows in the business.

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