What is Bank Reconciliation?

What is Bank Reconciliation?

A Bank Reconciliation is a schedule prepared that accounts for the differences between cash balance as per the records of an entity and as per bank statement records. The differences between the cash balance per books and per bank statements are caused by the reconciling items of both book (ledger) and bank statements. A bank reconciliation is normally required only for checking accounts.

What are the reconciling items?

Reconciling items are items that cause the cash balances of the bank and another entity to be different from each other. These reconciling items are already recorded in the bank but not yet recognized in another entity's records and vice versa.

List of reconciling items

  1. Bank Reconciling Items – these are items already recorded in the books of the depositor but not yet recorded by the bank
  • Deposits in Transit - these are cash receipts already recorded in the book as deposits but not yet in the bank.
  • Outstanding Checks – these are check disbursements that are already recorded in book as deductions from the bank balance but not yet recorded in the bank.
  • Bank Errors – these may be omissions to record a transaction, transposition (reversing the order of numbers) & slide (moving of the decimal point)
  1. Book reconciling items – these are those items already recorded by the bank but not yet recorded in the books of the depositor.
  • Credit memos – these are items that are already credited 0r recorded in the bank as a cash receipt but not yet recorded in the books. They cause the depositors' bank account to increase. e.g. collection by the bank, payments of interest by debtor/proceed by loan.
  • Debit memos – these are cash disbursements that are already recorded by the bank but not yet recorded by the book. They are items that cause the depositor’s bank accounts to decrease. e.g. service changes, NSF checks or Drawn against uncleared deposit checks or drawn against insufficient funds checks (DAUD & DAIF) and auto debits for payments of loans or bills.
  • Errors – omissions to record the transaction, transposition (reversing the order of numbers) & slide (moving of the decimal point)


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Why a Bank Reconciliation Statement is Prepared

Bank Reconciliation Statement is prepared to assure that the bank and the depositor are in agreement on the amount of cash (money) on deposits. A bank reconciliation is prepared for the following purposes :

  • Determine whether the bank account and the entity’s cash balance will agree after considering unrecorded items.
  • Isolate recording errors and other problems in the bank records on entity’s accounting system.
  • Establish the adjusted ending cash balance.
  • Provide information for adjusting entries.


Internal control over cash through a bank checking accounts.

  1. Checking accounts climate the need to keep large amount of cash on hand .
  2. The board of directors must notify the bank who is authorized to sign checks. Thus, access to cash is limited to those officers or employees designated by the board.
  3. The person responsible for cash disbursements is readily identified by the signature on the check.
  4. The bank returns all checks which have been paid from the account. Thus, the depositor has documentary evidence showing the date and amount of each cash payment and the identity of the person who received the cash.
  5. A comparison of the monthly bank statement with the depositor accounting records will bring to light any errors made either by the bank or by the depositor in accounting for cash transaction.

When does Bank Reconciliations occur?

Bank reconciliation is done after an entity receives its monthly bank statement. Therefore, it is usually done on a monthly basis. However, large business may receive bank statements on a weekly basis is done thus bank reconciliations of these entities may be done weekly.