Bank Reconciliation Statements (Edexcel IGCSE Accounting)

Purpose of a Bank Reconciliation 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

  • A bank reconciliation statement is needed to show these

• It contains details of any:

  • Unpresented cheques

  • Uncredited deposits

  • Errors

Preparing a Bank Reconciliation Statement

How do I prepare a bank reconciliation statement?

• STEP 1
  Update the cash book using the bank statement

  • Calculate the updated balance

• STEP 2
  Start the bank reconciliation statement with the updated balance in the cash book

  • If the balance is on the credit side then this means the bank should be overdrawn

    • Put the value in brackets and treat it as a negative number

• STEP 3
  Add any unpresented cheques

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

  • If there is more than one, then

    • Add these amounts together in a separate column of the bank reconciliation statement

    • Put the total in the end column

  • Add the total to the balance in the cash book

• STEP 4
  Subtract any outstanding lodgements

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

  • If there is more than one, then

    • Add these amounts together in a separate column of the bank reconciliation statement

    • Put the total in the end column

  • Subtract the total from the balance in the cash book

• STEP 5
  Deal with any bank errors

  • If the error has decreased the balance on the bank statement then subtract this amount from the balance in the cash book

  • If the error has increased the balance on the bank statement then add this amount to the balance in the cash book

• STEP 6
  Check that this amount is equal to the bank balance shown on the bank statement

  • If the balance is negative, then the bank balance should be overdrawn

  • This means the bank balance should have a debit balance

Can I start the bank reconciliation statement with the balance shown on the bank statement?

• You can create the bank reconciliation statement using the reverse order:

  • Start with the balance shown on the bank statement

  • Subtract the unpresented cheques

  • Add the outstanding lodgements

  • Check that it is equal to the balance shown in the cash book