BANK RECONCILIATION STATEMENT

INTORDUCATION

           A bank reconciliation is a schedule ecplaning any difference between the balance shown in the bank statement and the balance shown in the depositor's accounting records. The bank and the depositor maintain indeendent records of the deposits, the checks, and the current balance of the bank account. Each month, the depositor should prepare a bank reconciliation to verify that these independent sets of records are in agreement. This reconcillation may disclose internal control failures, such as unauthorized cash disbursements or failure to deposit cash receipts, as well as errors in either the bank statement or the depositor's accounting records.In addition , the reconciliation identifies certain transactions that must be recorded in the depositor's accounting records and helps to determine the actual amount of cash on deposit.

                                                                                                                                                                                                       

 Normal Differences between Bank Records and Accounting Record

   The balance shown in a monthly bank statement seldom equals the balance appearing in the 

depositor's accounting records. Certain transactions recorded by the depositor may not have 

been recorded by the bank. The most common example are:

OUTSTANDING CHECKS:

Checks issued and recorded by the company but not yet presented in the bank for payment.

DEPOSITS IN TRANSIT:

Cash receipts recorded by the depositor that reached the bank too late to be included in the bank 

statement for the current month.

SERVICE CHARGES:

Banks often charge a fee for handling small accounts. The amount of this charge usually depends on

both the average balance of the account and the number of checks paid during the month.

CHARGES FOR DEPOSITING NSF CHECKS:

NSF stands for "NOT SUFFICIENT FUNDS."  When checks from customers are deposited, the bank 

generally gives the depositor immediate credit. On occasion, one of these checks may prove to be uncollectible, because the customer who wrote the check did not have sufficient funds in his or her account.

CREDITS FOR INTEREST EARNED

Tthe checking accounts of unincorporated businesses often earn interest. At mont end, this interest is credited to the depositor's account and reported in the bank statement.

MISCELLANEOUS BANK CHARGES AND CREDIT:

Bank charge for services such as printing checks, handling collection of notes receivable , and processing. 

NSF checks. The bank deducts these chareges from the depositor's account and notifies the depositor by 

including a debit memeorandum in the monthly bank statement. If the bank collects a note receivable on

behlf of the depositor, it credits the depositor's account and issues a credit memorandum

STEP IN PREPARING A BANK RECONCILIATION:

1 Compare deposits listed in teh bank statement with the deposits shown in the acccounting 

records. Any deposits not yet recorded by the bank are deposits in transit and should be 

added to the balance shown in the bank statement

2 Compare checks paid by the bank with the corresponding entries in the accounting records .

    Any checks issued but not yet paid by the bank should be listed as outstanding checks to be 

    deducted from the balance reported in the bank statement.

3 Add to the balance p[er the depositor's accounting records any credit memorands issued by 

     the bank that have not been recorded by the depositor.

4 Deduct from the balance per the depositor's records any debit memoranda issued by the bank that have    not been recorded by the depositor.

5 Make appropriate adjustments to correct any errors in either the bank statement or the depositor's

accounting records.

6 Determine that the adjusted balance of the bank statement is equal to the adjusted balance in the 

depositor's records.

7 Prepare journal entries to record any items in the bank reconciliation listed as adjustments to the

balance per the depositor's records.