Bank reconciliation statement

A bank reconciliation statement is a process to align the bank statement with the bank balance in the business books. Normally, the balance in your books of accounts does not get a match with the statement produced by the banks. So, we need to identify certain items and adjust the balance of the bank statement or the balance from the company’s books.

Following items need to be tracked and adjusted to reconcile the books and bank statements.

Bank charges

These are the charges already deducted by the bank but not booked by the accountants. The amount of these charges is usually small. It happens because accountants do not record charges deducted by the bank. Normally, accountants discover bank charges when bank statements are received. Hence, bank charges need to be recorded within the books of the accounts.

Uncredited cheques

These are the cheques received by the business and recorded in the books. But, the problem is that these cheques are still in the drawer of an accountant and not submitted to the bank. It means you have to add the value in the bank balance to reconcile the items.

Unpresented cheques

These are the cheques business has given to its suppliers and recorded in the books. These suppliers have not submitted the cheques to the bank as of the statement date. Hence, you’ll need to make a deduction of the amount from the bank statement.

Direct deposit

These are the deposits that have been deposited by the customers directly in the accounts without actually informing the business. After receiving the bank statement, the accountant discovers that some customers have deposited the amount and were unaware of it. Hence, now they record the direct deposit amount in the books by increasing the cash and decreasing receivables.

Why is Bank Reconciliation important?

Bank reconciliation is essential for the business because cash is the risk thing and is vulnerable to the risk of fraud and theft. A substantial check on each transaction involving cash is necessary to ensure the opportunity is not provided to commit fraud. The top executive of the company usually approves the bank reconciliation that’s again a very good control of the overall process of accounting.

Further, the closing balance of the cash flow statement is matched with the balance in the books of accounts. This reconciliation again increases the worth of the cash balance as a metric, and a bank reconciliation statement becomes necessary.

Why auditor collect Bank reconciliation statement

The company’s auditors need to collect audit evidence to give assurance on a set of financial statements. As part of the normal audit procedure, auditors collect last month’s reconciliation and trace reconciling items. 100% accuracy of the bank reconciliation statement assures the auditors that management has been efficient in the company’s management.

Is bank reconciliation a good control?

Yes, review and approval of the bank statement is good control in itself. The approving authority of the bank reconciliation statement reviews and reconciled balances in the bank statement and the bank balances.

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