BANK RECONCILIATION STATEMENT

A Bank Reconciliation Statement (BRS) is a document used to reconcile the difference between the
bank balance shown in an organization’s accounting records and the balance shown on the bank
statement.

What is the purpose of a bank reconciliation statement?

 If the balance on the bank statement is different to the bank balance in the cash book, then
the business produces a bank reconciliation statement

 This is a statement which explains why the balances are different

 The cash book can be updated with missing transactions that are on the bank statement

 However, the business cannot update the bank statement with missing transactions that
are in the cash book

o A bank reconciliation statement is needed to show these

 It contains details of any:

o Unpresented cheques

o Uncredited deposits

o Errors

How do I prepare a bank reconciliation statement?

 STEP 1
Update the cash book using the bank statement. Verify those items appearing on the bank
statement but does not appear in the cashbook. Record those items in the cashbook.

o Calculate the updated balance

 STEP 2
Start the bank reconciliation statement with the balance shown on the bank statement

o Make sure you check whether the balance represents money in the bank or the
amount that the bank account is overdrawn

 A debit balance on the bank statement represents an overdraft

 STEP 3
Add any uncredited deposits

o These are the debit entries in the cash book that are missing from the bank
statement

o If there is more than one, then

 Add these amounts together in the left column of the bank reconciliation
statement

 Put the total in the right column

 o Add the total to the balance shown on the bank statement

 STEP 4
Add any bank errors that have decreased the balance on the bank statement

o Total these together with the previous entries

 STEP 5
Subtract any unpresented cheques

o These are the credit entries in the cash book that are missing from the bank
statement

o If there is more than one, then:

 Add these amounts together in the left column of the bank reconciliation
statement

 Put the total in the right column

o Subtract the total from the current amount in the right column in the statement

 STEP 6
Subtract any bank errors that have increased the balance on the bank statement

o Total these together with the previous entries

 STEP 7
Check that this amount is equal to the bank balance shown in the cash book

o If the balance is negative, then the cash book should have a credit balance
 Format

Updating Cash Book

Debi
Date Details t Date Details Credit
01-Jan-25 Balance B/d xxx 01-Jan-25 Balance B/d (Overdrawn) xxx
02-Jan Credit Transfer / Direct Transfer xxx 20-Jan Standing Order xxx
05-Jan Dividend Received xxx 21-Jan Direct Debit xxx
08-Jan Interest Received xxx 25-Jan Bank Charges xxx
31-Jan Balance C/d (Overdrawn) xxx 27-Jan Interest Charged on overdrawn account xxx
29-Jan Dishonoured Cheque xxx
31-Jan Balance C/d xxx

xxx xxx
01-Feb-25 Balance B/d xxx 01-Feb-25 Balance B/d (Overdrawn) xxx

Transactions appearing on the bank statement but are not recorded in the cash book.

 Bank charges

These are made by the bank to cover the cost of maintaining the drawer’s account. It is an amount
charged by the bank for the services provided. It is credited to the amended cash book.

 Standing order

These are payments made automatically by the bank on behalf of the trader. It is generally a fixed
amount each month. It is credited to the amended cash book.

 Direct debit

These are payments made by the bank on behalf of customers. The authority to withdraw money
from the account is given to the payee. The amounts withdrawn from the accounts are generally
variable. For example utility bills payments varies each month. It is credited to the amended cash
book.

 Dishonoured cheque

These are cheques received by the trader which has returned unpaid. This may be because of
insufficient fund in drawer’s account to honour (pay) the cheque. It is credited to the amended cash
book.

 Credit transfer

These are amounts paid into an account directly through the bank system instead of by issuing a
cheque. For example, Interest received/ Dividend received. It is debited to the amended cash book.

 Interest on overdraft

This is charged by the bank when the account of a trader is overdrawn. It is credited to the amended
cash book.
 Bank Reconciliation Statement
Balance as per bank statement xxx / (xxx)
Add: Uncredited Cheques xxx
Less: Unpresented Cheques (xxx)
Balance as per Cashbook Reconcilied xxx / (xxx)

Transactions recorded in the cash book but do not appear on the bank statement:

 Uncredited cheques (lodgements)

These are cheques deposited by the trader but not yet credited by the bank. Lodgements made by
the trader on the day the bank statement is produced by the bank may not yet be recorded on the
statement. These are added to the bank statement balance in the bank reconciliation statement.

 Unpresented cheque

These are cheques issued by the trader but not yet presented at the bank for payment. These
cheques are already credited by the trader in the bank column of the cash book. These are deducted
from the bank statement balance in the bank reconciliation statement.