# Steps and Rules for Preparing a Bank Reconciliation Statement

The process for preparing the bank reconciliation statement (BRS) follows the below steps or method:

(1) Compare the both opening balances of cash book and bank statement, these might be different because of un-presented or un-credited cheques from the previous period. Locate them on the bank statement and tick (✓) off these and opening balances as now agreeing.

(2) Compare the debit side of the cash book with the credit side of the bank statement and the credit side of the cash book with the debit side of the bank statement . Place a (✓) against the items which appear in both records.

(3) Identify the un-ticked items on the debit side of the bank statement and enter them on the credit side of the bank column of the cash book. They can then be ticked off too.

(4) Identify the un-ticked items on the credit of the bank statement and enter them on the debit side of the bank column of the cash book. They can then be ticked off too.

(5) Correct any errors or mistakes in the cash book.

(6) Calculate revised and corrected balance of the bank column of the cash book. This updated balance is shown in the balance sheet as cash at bank.

(7) Start the bank reconciliation statement with the up-dated cash book balance (as in “✓” above).

(8) If bank reconciliation statement is started with a debit balance then add any un-presented cheques and deduct any un-credited cheques. The opposite rules apply if it is started with a credit balance.

(9) Make necessary adjustments for bank errors. If bank reconciliation statement is started with a debit balance then add back any amounts credited in error by the bank and deduct any amounts debited in error by the bank. The opposite rules are followed if statement is started with a credit balance.

(10) The resulting figure should be equal the balance shown as per bank statement.

## Rules, Format and Procedure:

Following are the rules and format for preparing a bank reconciliation statement:

## Solved Example 1:

Bobby Berry runs a small business. He is unable to reconcile the balance on the business bank statement with that shown in his bank column of the cash book. Copies of two records are shown below:

Cash Book (Bank Column) for May 2018

Bank Statement for May 2018

Required:

(a) Following the steps for preparing bank reconciliation statement; update and correct the bank column of the cash book.

(b) Prepare a statement reconciling the balance on the bank statement with the cash book balance from (a).

### Solution:

“Tick” all the items including the opening balances that appear both in Berry’s cash book and his bank statement.

Bank Statement for May 2018

Cash Book (Bank Column) for May 2018

The four transactions on the bank statement remain un-ticked because Berry has not yet recorded them in his cash book.

The items that remain un-ticked in the debit side of the bank statement included dishonored cheque, bank charges and direct debits (insurance), which have not been entered in the cash book, because Berry did not know about them until he received the bank statement.

These should now be credited in the bank column of the cash book.

The items that remain un-ticked in the credit column of the bank statement should now be debited in the bank column of the cash book after showing closing balance of the original cash book as opening balance.

After updating the bank balance of cash book, a bank reconciliation statement is prepared commencing with the updated balance of the adjusted cash book.

The items that remain un-ticked in the credit side of the bank column of the cash book is an un-presented cheque issued to D small and should now be added to updated cash book balance.

The items that remain un-ticked in the debit column of the cash book are un-credited deposits of J. Marshall and K. Brown and should now be deducted.

It can now be seen that the resulting figure after these adjustments is equal the balance shown as per bank statement.

(a):

Adjusted Cash Book (Bank Column only)

(b):

Bank Reconciliation Statement

## Solved Example 2:

Franklin is preparing his bank reconciliation statement at 30 June 2018. His bank statement shows an overdraft balance of \$1027. The balance on the bank column in the cash book is \$1031 (debit).

He has noted the following reasons for the difference:

(i) A lodgement of \$3500 entered in Franklin’s cash book on 30 June was credited on the bank statement on 3 July.

(ii) The bank imposed a service charge of \$65.

(iii) A cheque issued to Jones for \$350 was replaced when out of date. It was entered again in the cash book. Both cheques were included in the total of un-presented cheques of \$1450.

(iv) A cheque amounting to \$650 was received from a customer Shahid Ashraf on 24 June and deposited a day after. However, due to insufficient funds in Shahid’s account, the bank informed the Franklin that the dishonored cheque dab been debited to Franklin.

(v) Franklin transferred \$500 from his personal bank account into the business bank account. The bank recorded the transfer on 30 June, but no entry was made in business records.

(vi) A cheque issued to a supplier correctly shown on the bank statement as \$325. Franklin incorrectly recorded this payment as \$532.

Required:

(a) Calculate bank balance to be shown in the balance sheet as at 30 June 2018.

(b) Prepare a statement to reconcile the bank statement balance to the corrected balance on the bank column of the cash book.

Solution (a):