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How to prepare bank reconciliation statement?

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Earlier we had a lesson on What is a bank reconciliation?  and about the causes of disagreement between bank ledger with depositor ledger. Here lets try for reconcile the two balances.

How to prepare bank reconciliation statement.? To do this you have to analyse both the ledgers rest with bank and depositor and analyse the entries this way.

  • Debit side ( withdrawal side )of the bank passbook with entries of the credit ( payment) side of the depositor ledger
  • Credit side ( Deposit side) of bank passbook with entries of  debit side( receipt) side of the depositor ledger.

Entries which are appear in both the sides make no difference in balances. It is the entry which appear in one book and do not in the other makes the difference. Find out  those entries and make list.

Bank Reconciliation example

On 10-04-2016 Adstar Inc has a bank balance of 12000 in their books and their passbook shows a balance of 10100. On analyzing both the passbook and bank ledger found the following reasons for disagreement.

There are two approach for preparing bank reconciliation statement.

  1. Starting with ‘Balance as per bank statement and ending with book balance of depositor.
  2. Starting with bank balance as per depositor book and ending with balance as per bank statement.

Create a bank reconciliation statement starting with ‘Balance as per bank book‘and arrive the figure in Balance as per Depositor book‘.

Let’s closely examine the the first cause of disagreement.

Cause 1

Adstar Inc  Issued check for 3000 on  to their customer Albert Inc

As usual company passes an entry in  their  bank account.3000 deducted immediately after issuing check.But the customer who were issued the check kept in his hand for a time being. Adstar Inc unaware of this situation.Later on printing passbook,they understood their balance has not been deducted yet from bank .Found that the customer did not collected the money yet. Which caused disagreement with balances. Depositor ledger decreases and the ledger kept at bank of depositor remains unchanged.

To reconcile Adstar Inc  ledger with  bank book ledger  an addition of 3000 has to be made with the bank passbook balance.

Cause 2

Cheque deposited of 2000 bank has not credited yet.

In this situation the depositor has debited his bank account hence his bank balance increased, but bank has not credited the amount yet.Hence the bank balance of Adstar Inc remains unchanged in bank book. To reconcile or tally bank book balance with customer bank ledger account. You have to add 2000 to bank book balance.

Cause3

Bank charges  100  debited by bank

Here, Bank has debited 100 to Adstar Inc account by a charge like folio charge. The balance of Adstar Inc reduced at bank book. but the depositor ledger remains unchanged. To reconcile bank book balance with Depositor book balance you have to add 200 to existing bank book balance.

Cause4

Cheque Deposited  3000 & bank credited, later dishonoured.

In this situation both bank and depositor increased the balance upon deposit, later the deposited cheque was dishonoured or returned unpaid. In this circumstance bank has debited and reduced Adstar Inc balance in their book. But Adstar Inc Unaware of the return, hence they did not made any change. hence the balance in Bank book increased by 3000 than Adstar  Inc ledger in their books of account. To reconcile the bank book balance with depositor balance , reduce or less 3000 from bank book balance of Adstar Inc.

Cause5

Bank interest credited 200

Here bank credited an interest 200, hence the balance of Adstar Inc in the bank books increased. But no change in depositor book as they were unaware of the situation.

To reconcile bank book balance with depositor book balance, You have to deduct 200 from bank book balance.

After reconciling all the disagreement we can make a statement,called bank reconciliation statement.

Hope you got an idea How to prepare bank reconciliation statement?

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