What is a 'Bank Reconciliation Statement'?

Written by PaayiAdmin |06-Feb-2019 | 0 Comments | 345 Views

Accounting is a process of summarizing the information, analyzing the data, interpreting and then reporting it. It is related to the financial transactions. Accounting is necessary to keep the record of the transaction in every company or firm. Let us understand in this article what is bank reconciliation statement?

Even a small grocery store does accounting to keep check and balance of the data. An accountant is a person that is assigned this job. He is taken a degree in this field or has a diploma.

In banks, the accountant’s job is to keep the record of the financial transactions and generating results. Accounting is a cycle of five to six steps. They include general entries in a journal and then making t-accounts which further proceeds to trial balance. Financial statements are generated that are income and owner’s equity statements. The balance sheet is made that gives the balance of assets, liabilities and owner’s equity. Through balance sheet, cash flow is generated.

Banks have their accounting system. They keep records of everything. Sometimes the balance in accounting records and the balance in bank statement doesn’t match. The company balance which is at cash doesn’t get equal to the balance recorded through accounting.

Bank reconciliation is the process of comparing or matching the two balances so that there will remain no error. Bank reconciliation is a statement that ensures that the recorded balance matches the entity’s balance.

There can be many aspects for a mismatch like outstanding balance, deposits that are transit in the bank, errors occurring, service income and tax, etc. Bank reconciliation is a process carried out by a bank to record the difference between the commercial recording and company’s balance at hand.


There are some transactions which are done in accounting records but not in bank statements.


Outstanding checks:

There are several checks which have been issued by the company but are not cleared by the bank before the issuance of the bank statement. Checks that are written in the last days of months and first checks are considered to be included in outstanding checks.


Deposits that are in transit:

These are the deposits which have been sent by the company, but due to some reasons, banks have not been able to receive them in proper time before the bank statement issuance.

Similarly, there are some transactions which have been done in bank statement but don’t appear in accounting statements.


Interest income:

It is the interest earned by the company. It is recorded in bank statement but not in accounting statement. It is always added to the account balance. It is not usually mentioned in the company’s cash account.


NSF checks:

NSF stands for “not sufficient funds.” There are several checks issued or deposited by the company but not received by the bank. The reason is that there is not sufficient amount present in the account of the payer. The check is returned without being paid or honored. It is included in the bank statement, but as it was not cleared, so it is not mentioned in accounting or cash statements.


Notes Receivable:

They are considered to be the assets of the company. These are accounts that the company has to receive. When the receivables are due, the bank receives it and adds it to their bank statement. But they are not included in Cash's account. The reason is that at that time when the financial records were being generated the company didn’t receive the notes. They have to be adjusted afterward.


Service charges:

Bank charges for various things like depositing of checks etc. These charges are not mentioned in the cash’s statements, but they are included in bank statements.


Bank Reconciliation process:

This process includes two steps

  1. Balance adjusting per bank:

The things which are not included in bank statements but present in Cash's accounts are adjusted in there.

  1. Balance adjusting per book:

It is the step in which information included in bank statement is improved and added to Cash's account.

After this, adjusted balances are compared, and general entries are made for the adjustments.

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