Bank Reconciliation
When you are recording bank payments and bank receipts in your cashbook, there is bound to be a timing difference between when these transactions are made and when they clear your bank account. As a result, it is unlikely that the balance in your cashbook will agree to the balance per the bank statement. In order to ensure that the difference is purely down to these timing differences, and not due to error, it is essential to draw up a monthly bank reconciliation.
Example
| Bank Balance Per Cashbook | £ | ||||
| Cashbook Balance at the Start of the Month | 1,256.84 | ||||
| Add: Cashbook Receipts for the Month | 5,642.23 | ||||
| Less: Cashbook Payments for the Month | (5,368.41) | ||||
| Cashbook Balance at the End of the Month | 1,530.66 | ||||
| Reconciliation of Bank Statement Balance to Cashbook Balance | £ | ||||
| Bank Statement Balance at the End of the Month | 1,128.96 | ||||
| Add: Outstanding Receipts | 856.94 | ||||
| (These are any receipts that have been banked close to the end of the month and do not clear the | 1,985.90 | ||||
| bank account until the next month) | |||||
| Less: Outstanding Payments | |||||
| (These are any cheque payments made that have not yet cleared the bank account.) | |||||
| Date | Chq No. | Details | Total | ||
| 29/11/2008 | 101679 | Electric Bill | 222.31 | ||
| 30/11/2008 | 101681 | Telephone Bill | 86.53 | ||
| 30/11/2008 | 101682 | Training Course | 146.40 | ||
| (455.24) | |||||
| Reconciled Balance: | 1,530.66 | ||||
If your bank account does not reconcile then there is likely to be an error in the cashbook. In this case, you may need to tick the cashbook to the bank statement for that month to find the discrepancy.
Common pitfalls are as follows:
- Cheques that may still be outstanding from more than one month ago. Make sure you always check that the previous months outstanding cheques have cleared the bank in the current month.
- Missing off direct debits. Make a list of all the direct debits somewhere so that you don’t forget any of them.
- Mis-addition of the cashbook. Run a calculator down the totals column of the cashbook to check for any addition errors.
- Transposition errors are also a common mistake. For example, a payment for £154.23 may be recorded as £145.23 or £154.32 etc. If you have made a mistake of this nature, the difference on your bank reconciliation will always be divisible by 9.
For further information on the bookkeeping services and training we provide please contact us.