03/06/2016
Bank reconciliation
A Bank reconciliation is a process that explains the difference between the bank balance shown in an
organization's bank statement, as supplied by the bank, and the corresponding amount shown in the
organization's own [accounting] records at a particular point of time.
Such differences may occur, for example, because a cheque or a list of cheques issued by the organisation has not been presented to the bank, a banking
transaction, such as a credit received, or a charge made
by the bank, has not yet been recorded in the
organization's books, or either the bank or the
organisation itself has made an error. It may be easy to reconcile the difference by looking at
very recent transactions in either the bank statement or the organisation's own accounting records (cash
book) and seeing if some combination of them tallies
with the difference to be explained. Otherwise it may
be necessary to go through and match every
transaction in both sets of records since the last
reconciliation, and see what transactions remain unmatched. The necessary adjustments should then be
made in the cash book, or any timing differences
recorded to assist with future reconciliations. For this reason, and to minimise the amount of work
involved, it is good practice to carry out such
reconciliations at reasonably frequent intervals.
Reconciliations are generally performed by specialised accounting software though the understanding of what occurs is important for a successful
reconciliation. Also, Bank reconciliation statement is a statement prepared on a particular day to reconcile
the bank balance as per Cash book or Bank statement
showing entries causing difference between the two
balances.
Abbreviations The following abbreviations are typical abbreviations
on a bank statement:
DO - Debit order
SO - Standing order
IS - Insurance
SF - Service fees
CO- Credit order
