Prepare a bank reconciliation when you receive your bank
statement every month. This is a very important part of your
cash control procedures. It verifies the amount of cash you have
in your checking account.
The cash balance in your books will never agree with the
balance shown on the bank statement because of the delay in
checks and deposits clearing the bank, automatic bank charges
and credits you haven't recorded, and errors you may have made
in your books. After preparing the bank reconciliation, you can
be comfortable that the account balance shown on your books is
Another important reason to do a bank reconciliation is that
it may uncover irregularities such as employee theft of funds.
Here are step-by-step instructions for preparing a bank
- Prepare a list of deposits in transit. Compare the
deposits listed on your bank statement with the bank
deposits shown in your cash
receipts journal. On your bank reconciliation, list any
deposits that have not yet cleared the bank statement. Also,
take a look at the bank reconciliation you prepared last
month. Did all of last month's deposits in transit clear on
this month's bank statement? If not, you should find out
what happened to them.
- Prepare a list of outstanding checks. In your cash
disbursements journal, mark each check that cleared the
bank statement this month. On your bank reconciliation, list
all the checks from the cash disbursements journal that did
not clear. Also, take a look at the bank reconciliation you
prepared last month. Are there any checks that were
outstanding last month that still have not cleared the bank?
If so, be sure they are on your list of outstanding checks
this month. If a check is several months old and still has
not cleared the bank, you may want to investigate further.
- Record any bank charges or credits. Take a close
look at your bank statement. Are there any special charges
made by the bank that you have not recorded in your books?
If so, record them now just as you would have if you had
written a check for that amount. By the same token, if there
are any credits made to your account by the bank, those
should be recorded as well. Post
the entries to your general
- Compute the cash balance per your books. Foot
the general ledger cash account to arrive at your ending
- Enter bank balance on the reconciliation. At the
top of the bank reconciliation, enter the ending balance
from the bank statement.
- Total the deposits in transit. Add up the deposits
in transit, and enter the total on the reconciliation. Add
the total deposits in transit to the bank balance to arrive
at a subtotal.
- Total the outstanding checks. Add up the
outstanding checks, and enter the total on the
- Compute book balance per the reconciliation.
Subtract the total outstanding checks from the subtotal in
step 6 above. The result should equal the balance shown in
your general ledger.
March 31, 2000
|Balance per bank statement
|Deposits in Transit
|Balance per books
In the above example, if the general ledger cash account does
not show a balance of $3,950.72, you will need to track down the
cause of the difference.
In the Business Tools area is a
reconciliation spreadsheet to make bank
reconciliations easy for you. It is an Excel 4.0
spreadsheet template, so you can use it as a
starting point for your own bank reconciliations.
If your bank reconciliation doesn't balance, you need to find
the error or errors. Here are the possible causes of a bank
- Total outstanding checks added incorrectly. Double
check your addition of the total outstanding checks.
- Total deposits in transit added incorrectly. Double
check your addition of deposits in transit.
- Bank balance written down incorrectly. Did you
start with the correct amount at the top of your
reconciliation? Double check by comparing it to the month
end balance on your bank statement.
- Failed to record all items clearing the bank statement.
Look at your bank statement carefully. Are there any items,
such as miscellaneous bank charges or automatic deposits or
withdrawals, that were not recorded in your books?
- Journals added incorrectly. Double check your
addition of cash receipts and cash disbursements.
- Failed to record a check or deposit. Did you record
all checks and deposits in your journals? This should have
been apparent when you were preparing your lists of deposits
in transit and outstanding checks.
- Incorrectly recorded an amount. Compare each item
on the bank statement with your journal entry for that item.
Did you enter the correct amount?