Bank reconciliation statement
A bank reconciliation statement is a working schedule explaining every difference between a business's cash book balance and its bank statement balance, so both are brought to one agreed true cash figure.
See it move
A bank reconciliation statement brings two balances to the same figure. Starting from the cash book's €5,340, adding €40 of bank interest and subtracting €15 of bank charges gives €5,365. Starting from the bank statement's €5,965, subtracting €900 of unpresented cheques and adding back a €300 deposit in transit also gives €5,365, confirming the true cash position.
The formula
Variables
- Cash book balance before adjustment (€)
- Bank credits not yet recorded (e.g. interest earned, amounts collected directly by the bank) (€)
- Bank deductions not yet recorded (e.g. bank charges, dishonoured cheques) (€)
Corrects the company's own cash book for items the bank has already processed but the business has not yet entered.
Variables
- Bank statement balance before adjustment (€)
- Unpresented (outstanding) cheques written but not yet cashed (€)
- Deposits in transit (recorded by the company, not yet credited by the bank) (€)
Corrects the bank statement for items the company has already recorded but the bank has not yet processed.
Check yourself
A company's cash book shows a balance of €8,240 at the end of the period. The bank statement shows €8,890. Investigation finds: cheques written but not yet presented totalling €1,260; a deposit made on the last day, not yet credited by the bank, of €450; bank charges of €40 not yet entered in the cash book; and a standing order of €120 paid directly by the bank but not yet entered in the cash book. What is the correct reconciled cash balance?