Procedure for bank reconciliation

1. We need to eliminate items that appear in both the cashbook and on the bank statement, as these will not be the reason for the discrepancy.
2. The cashbook will need to be brought up to date by entering items found only on the banks statement and not in the cashbook.
3. Draw up a reconciliation statement using the updated cashbook balance and items appearing in the cashbook that were not on the bank statement.

A bank statement was received by M Sim on 31 July 2002. It appeared as follows:

Bank statement

2003	-	(Dr) £	(Cr) £	Balance £
July 1	Balance b/f	-	-	650 Cr.
July 3	Cheque	-	45	695 Cr.
July 6	Standing order: A May	300	-	395 Cr.
July 8	Cheque - 011654	290	-	105 Cr.
July 12	Interest	-	5	110 Cr.
July 22	Cheque - 011655	250	-	140 Dr.
July 27	Cheque	-	560	420 Cr.
July 31	Balance c/f	-	-	420 Cr.

The cashbook for July 2003 appeared as follows:

Cashbook

2003	-	£	2003	-	£
Jul 1	Balance b/d	650	Jul 11	P Willmott	290
Jul 6	L Wosko	45	Jul 25	M Goulding	250
Jul 21	J Thompson	230	Jul 29	S Davey	75
-	-	-	Jul 30	Balance c/d	310
-	-	925	-	-	925
May 1	Balance b/d	310	-	-	-

Bank statement balance = £420
Cashbook balance = £310

The procedure is always to add unpresented cheques and to subtract undeposited cheques from the updated cashbook balance. It is possible to start with the balance on the bank statement, in this case, undeposited cheques would be added and unpresented cheques would be subtracted.

The reconciliation has worked. This means that no errors have been made. If the two balances could not be reconciled then errors would have been present. The differences in the balances on the cashbook and banks attempt can be explained and reconciled by firstly, updating he cashbook and secondly, by adjusting for cheques that have not yet shown up on our bank statement.