How to prepare bank account reconciliation

6. Real life example of the bank reconciliation process

Let's now take a look at an example of a bank account reconciliation. Suppose your cash account showed a debit balance of $570 on June 30, 20XX. Balance on the bank statement as of the same date was $290. You have analyzed the records in the cash account and in the bank statement and discovered the following differences:

Checks drawn on June 29 have not yet cleared the bank account

$ 300

Deposit made into the bank account on June 30 was not recorded by the bank until July 1

435

June bank charges on the bank statement

62

June standing orders

160

A check received and deposited into the bank account was refused by the paying bank

230

A payment had been entered twice into the cash account(s)

140

June bank interest shown on the bank statement

167

We need to adjust the cash account and prepare a bank reconciliation statement as of June 30, 20XX.

In preparing this bank reconciliation, it is important to determine in which section a particular item should be included (refer to Illustration 2):

  • Section 1 - a journal entry is required in the cash account(s)
  • Section 2 - an adjustment to bank statement balance is needed

Illustration 3: Example of filled in bank account reconciliation

Adjust cash account in general ledger (Section 1)

Balance per cash account in general ledger

570

 

Adjustments to cash account (based on bank statement):

 

Add:

Bank interest

167

   

Credit / wire transfers

___

 

Subtract:

Bank charges

(62)

   

Standing orders

(160)

   

Direct debits / ACH

___

   

Dishonoured checks

(230)

 

Add/Subtract:

Errors

140

Adjusted cash account in general ledger

425

       

Adjust balance on bank statement (Section 2)

Balance per bank statement

290

       

Adjustments to bank statement balance (based on accounting records):

 

Add:

Deposits in transit

435

 

Subtract:

Checks issued, but have not cleared bank

(300)

 

Add/Subtract:

Bank errors

 

Adjusted balance per bank statement

425

       

Compare adjusted balances (Section 3)

Adjusted cash account in general ledger

425

Adjusted balance per bank statement

425

Difference

0

       

Reconciling items

 
 

Reconciling item a short description

___

 

Reconciling item b short description

___

 

 

Total reconciling items (= Difference)

0

       

After we have adjusted both balances (Section 1 and Section 2) they match (both amount to $425). As a result we have successfully completed the bank reconciliation as of June 30, 20XX.

Another reconciliation type is a ledger to sub-ledger reconciliation, which we will review in another article. An example with detailed explanations will be also provided.

In summary, reconciliation is an important process to ensure company's balances are stated correctly. Reconciliations should be prepared timely, by knowledgeable employees, and include detailed analysis of reconciling items. Reconciling items should be adjusted in the ledger when deemed necessary. Proper segregation of duties should be put in place for the reconciliation process. Items on the bank statement but not in cash accounts should be posted to accounting records to ensure the financial records are not misstated at a period end.

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