Unit 14 - Bank Reconciliation

Bank Reconcilation

Bank reconciliation is among the most common of the cash control procedures. Within the realm of business, each bank statement needs to be promptly reconciled. Reconciliation is required as a means of identifying adjustments, irregularities and errors for the Cash accounts. The use of an independent person will assist in establishing a separation of duties while deterring from the occurrence of (possible) fraud.

There are a variety of formats that can be used for reconciliation. Ultimately, a reconciliation is a comparison of the amount of cash that is shown on a monthly financial statement with the amount that has been reported via the general ledger. The two balances may differ frequently due to items that may not yet be recorded by a company’s bank. Those item may very well include the following:

· Deposits in transit

· Outstanding checks

· Non-sufficient funds

· Bank service charges

· Notes receivable payments collected on behalf of the company via the bank

· Interest earnings

· Errors

It should be noted that the balance according to the bank statement will need to be reconciled to the correct cash amount. Similarly, the balance of the company records needs to be reconciled to the correct amount as well. Moreover, the amounts must be in agreement. Once a satisfactorily calculated cash balance has occurred, journal entries must be made for all of the items that have been identified within the course of the reconciliation of the ending balance according to company records for the correct cash balance.



The following information was available after the Cashbook for Joshua’s Pharmacy was compared to the Bank Statement as December 31st 2010.

1. Cash book showed an overdraft of $10,100

2. The Bank Statement showed a debit balance of $10,568

3. A deposit of $7,654 does not appear on the bank statement

4. Cheques not yet presented



The bank recorded the following information

Credit Card fees $150

Service fees $243

Interest on o/d $163

Chq of $260 received from Ethan was dishonoured by the bank. The discount allowed was $30

A payment for T.Brown for $3000 appears in the Bank Statement not the Cash book .

The bank statement shows a debit of $693 for an insurance premium

Rent deposited to the bank account from P. Simon amounted to $4200

Required : Prepare bank reconciliation as at December 31st 2010.