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VI
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, AccountingCoach.com
Bank Reconciliation
All underlined words are defined in the attached Glossary (Pages 10 – 12).
Introduction to Bank Reconciliation
A company's general ledger account Cash contains a record of the transactions (checks
written, receipts from customers, etc.) that involve its checking account. The bank also
creates a record of the company's checking account when it processes the company's
checks, deposits, service charges, and other items. Soon after each month ends the
bank usually mails a bank statement to the company. The bank statement lists the
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activity in the bank account during the recent month as well as the balance in the bank
account.
When the company receives its bank statement, the company should verify that the
amounts on the bank statement are consistent or compatible with the amounts in the
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company's Cash account in its general ledger and vice versa. This process of
confirming the amounts is referred to as reconciling the bank statement, bank statement
reconciliation, bank reconciliation, or doing a "bank rec." The benefit of reconciling the
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bank statement is knowing that the amount of Cash reported by the company
(company's books) is consistent with the amount of cash shown in the bank's records.
Because most companies write hundreds of checks each month and make many
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deposits, reconciling the amounts on the company's books with the amounts on the
bank statement can be time consuming. The process is complicated because some
items appear in the company's Cash account in one month, but appear on the bank
statement in a different month. For example, checks written near the end of August are
deducted immediately on the company's books, but those checks will likely clear the
bank account in early September. Sometimes the bank decreases the company's bank
account without informing the company of the amount. For example, a bank service
charge might be deducted on the bank statement on August 31, but the company will
not learn of the amount until the company receives the bank statement in early
September. From these two examples, you can understand why there will likely be a
difference in the balance on the bank statement vs. the balance in the Cash account on
the company's books. It is also possible (perhaps likely) that neither balance is the true
balance. Both balances may need adjustment in order to report the true amount of cash.
After you adjust the balance per bank to be the true balance and after you adjust the
balance per books to also be the same true balance, you have reconciled the bank
For personal use by the original purchaser only. Copyright © 2009 AccountingCoach.com. 1
VI
U
ST
, AccountingCoach.com
Bank Reconciliation
All underlined words are defined in the attached Glossary (Pages 10 – 12).
Introduction to Bank Reconciliation
A company's general ledger account Cash contains a record of the transactions (checks
written, receipts from customers, etc.) that involve its checking account. The bank also
creates a record of the company's checking account when it processes the company's
checks, deposits, service charges, and other items. Soon after each month ends the
bank usually mails a bank statement to the company. The bank statement lists the
ST
activity in the bank account during the recent month as well as the balance in the bank
account.
When the company receives its bank statement, the company should verify that the
amounts on the bank statement are consistent or compatible with the amounts in the
U
company's Cash account in its general ledger and vice versa. This process of
confirming the amounts is referred to as reconciling the bank statement, bank statement
reconciliation, bank reconciliation, or doing a "bank rec." The benefit of reconciling the
VI
bank statement is knowing that the amount of Cash reported by the company
(company's books) is consistent with the amount of cash shown in the bank's records.
Because most companies write hundreds of checks each month and make many
A
deposits, reconciling the amounts on the company's books with the amounts on the
bank statement can be time consuming. The process is complicated because some
items appear in the company's Cash account in one month, but appear on the bank
statement in a different month. For example, checks written near the end of August are
deducted immediately on the company's books, but those checks will likely clear the
bank account in early September. Sometimes the bank decreases the company's bank
account without informing the company of the amount. For example, a bank service
charge might be deducted on the bank statement on August 31, but the company will
not learn of the amount until the company receives the bank statement in early
September. From these two examples, you can understand why there will likely be a
difference in the balance on the bank statement vs. the balance in the Cash account on
the company's books. It is also possible (perhaps likely) that neither balance is the true
balance. Both balances may need adjustment in order to report the true amount of cash.
After you adjust the balance per bank to be the true balance and after you adjust the
balance per books to also be the same true balance, you have reconciled the bank
For personal use by the original purchaser only. Copyright © 2009 AccountingCoach.com. 1
