Bank Reconciliation

It is a process performed by a company, usually difference may occur between bank balance in company books of records and bank balance in bank records. This may be due to checks deposited but not cleared, checks issued but not presented for payment and other service charges directly deducted by the bank, due to this company prepare a reconciliation statement to know the difference.

 

 

 

Below are the transactions generally appearing in company’s books accounts but not in the bank statement.

 

 

Deposits in Transit

 

Generally, once you have been received check from customer, you have to send to the bank for collection of the payment during this process it may take two or three days time to collect money or amount credited to your bank account.

 

 

In the above case company accountant has been recorded the check deposited transaction into their accounting system, but whereas in bank records when bank collects the money only it updated in bank records.

 

 

Example

 

The check has been received on 30^th April 2017 from a customer and the same has been recorded in company books of accounts and the same has been deposited in the bank, but here deposits in transit it may take 2 or 3 days time to update in the bank statement. In this case when you perform the reconciliation for the month of April 2017, the bank balance will not match between company books of accounts and bank statement, because the amount has been recorded in company books of accounts and not recorded/updated in bank records.

 

 

Outstanding checks

 

Checks have been issued by the company to their vendors due to outstanding payments, the checks have been recorded immediately in company books of accounts, but the issued checks have not yet reached the bank for clearing.

 

 

Example

 

The check issued on 29^th April 2017 and the same have been recorded immediately in the company’s books of accounts, but whereas in bank records not updated, because it may take 2 or 3 days time to clear the check, and the receiver of the check also need to send to the bank for deposit.

 

 

Below are the transactions generally appearing in bank statement but not in company’s books of accounts.

 

 

Bank charges

 

Bank service charges have been deducted by the bank, the same got updated in bank statement, but not recorded in the company’s books of accounts.

 

In this case when you have received a statement from the bank then you came to know that how much bank charges have been debited by the bank.

 

 

Interest received

 

If a company earned any interest income from its bank account, the same got updated in bank statement, but not recorded in company’s books of accounts.

 

In this case when you received a statement from the bank then you came to know that how much interest income have been credited to your account.

 

Also, sometimes due to the insufficient funds in bank account bank will deduct some charges and the same have been recorded in the bank statement, but those charges will not record company’s books of accounts until you receive a statement from the bank.

 

Example

 

Bank balance showing as per the bank statement dated 31^st May 2017 is $28,000, and the bank balance showing on the same date as per the company’s records is $26,500.

 

 

1. Below checks issued by a company to its vendors, still have not yet cleared by the bank

                  Vide check No. 143 issued on May 15    $440

                  Vide check No. 144 issued on May 28    $140

                  Vide check No. 145 issued on May 29    $500

 

2. Bank charges debited by the bank of $70 May 20^th
3. The bank collected receivable amount on behalf of the company of $1050 on 24^th May
4. A check of $200 was deposited by the company the same has been charged back as NSF
5. Interest received from the bank of $840 and the same updated in bank records ^30th May
6. Check sent for deposit on 30^th May of $1200, the same has been recorded in company books of accounts and does not appear in bank records

 

 

Company XYZ

Bank reconciliation for the month of 31^st May 2016

 

Balance as per bank statement as on 31^st May 2016                                           $28,000

Add:  

Deposit in transit                                                                         $1,200

 

Less: Outstanding checks

Check No. 143 issued on May 15               $440

Check No. 144 issued on May 28               $140

Check No. 145 issued on May 29               $500                          $1,080

 

Adjusted balance as per bank                                                                         $28,120

 

 

 

 

Balance as per company records                                                                        $26,500

 

Add:

Receivable collected by the bank            $1050

Interest earned                                          $840                        $1,890

 

Less:                                                                                     

NSF Check                                                   $200

Bank charges                                                $70                         $270

 

Adjusted balance as per books                                                                       $28,120

 

 

 

Journal Entries

 

Bank Account – Dr 1050

 

Receivable – Cr 1050

 

 

Bank Account – Dr 840

 

Interest earned – Cr 840

 

 

Bank Charges – Dr 70

 

Bank Account – Cr 70

 

 

Receivable – Dr 200

 

Bank Account – Cr 200

 

 

 

 

Related Topics

 

Accounts Payable Process

 

Depreciation

 

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