There are 2 sections on this page.
Section 1: Steps to perform bank reconciliation
Section 2: Other questions related to bank reconciliation
(i) State cash at bank balance in statement of financial position after bank reconciliation (or State the adjusted cash at bank balance)
(ii) State the effect of bank reconciliation on profit for the period
(iii) Calculate adjusted profit for the period after bank reconciliation
If opening balances are different, look for the difference in bank statement and cancel that transaction.
Compare $ coming IN column in cash at bank account (i.e. Dr column) with $ coming IN column in bank statement (i.e. Cr or Receipts column)
Compare $ going OUT column in cash at bank account (i.e. Cr column) with $ coming OUT column in bank statement (i.e. Dr or Payments column)
Put a tick if transaction is recorded in both cash at bank account and bank statement.
Circle if a transaction is only recorded in cash at bank account or only recorded in bank statement.
Put an asterisk if there is error in recording.
Update cash at bank account:
with circles from the bank statement (i.e. transactions not recorded by the business but recorded in the bank statement) and
with correction of error made by the business (i.e. asterisk in the cash at bank account)
Note:
Start the updated cash at bank account with the very last day of the month.
Start the updated cash at bank account using the last balance of the given cash at bank account.
Account names must always be written first in the “Particulars” column of the updated cash at bank account.
Description such as “dishonoured cheque” and “correction of error” should always be written in bracket after the account name. For example, it should be written like this:
“John (dishonoured cheque)”
“Rent (correction of error)”
For dishonoured cheque, to find the name of the customer who gave the business the cheque, look for the same amount in the Dr (+) column of the cash at bank account.
This picture shows how to correct error made by the business.
Prepare bank reconciliation statement:
with circles from the cash at bank account (i.e. transactions not recorded in the bank statement but recorded by the business)
with correction of error made by the bank (i.e. asterisk in the bank statement)
This picture shows how to correct error that was made by the bank in the bank statement.
This picture shows the format of bank reconciliation statement.
Note: "Balance as per bank statement" refers to the last balance in the bank statement.
Final balance upon completing Step 3a (i.e. updated cash at bank account) must be the same as final balance upon completing Step 3b (i.e. bank reconciliation statement).
The cash at bank balance on statement of financial position after bank reconciliation is the final balance in the ADJUSTED (or UPDATED) cash at bank account.
If it is a Dr balance, the amount is presented as Cash at Bank under Current Assets.
If it is a Cr balance, the amount is presented as Bank Overdraft under Current Liabilities.
Look for income and expense items in the adjusted (or updated) cash at bank account.
Profit for the period = Total income - Total expenses
Hence,
Income increases profit for the period:
Income are usually amounts under IN column of adjusted (or updated) cash at bank account and particulars correspond to accounts commonly associated to income e.g. commission income, interest income, dividend income etc.
Expenses decreases profit for the period:
Expenses are usually amounts under OUT column of adjusted (or updated) cash at bank account and particulars correspond to accounts commonly associated with expense e.g. interest, bank charges, rent, insurance, utilities etc.
Profit for the period = Total income - Total expenses
Hence,
Adjusted profit for the period
= Unadjusted profit for the period
+ Income (in the adjusted (or updated) cash at bank account)
- Expenses (in the adjusted (or updated) cash at bank account)
Income are usually amounts under IN column of adjusted (or updated) cash at bank account and particulars correspond to accounts commonly associated to income e.g. commission income, interest income, dividend income etc.
Expenses are usually amounts under OUT column of adjusted (or updated) cash at bank account and particulars correspond to accounts commonly associated with expense e.g. interest, bank charges, rent, insurance, utilities etc.