Bank reconciliation is the process of comparing your cash book entries with your bank statement at the end of each month and explaining any differences.
The balance shown on the bank statement may not be the same as that shown in the cash analysis books, because, for example:
- There is a delay between the date the entries are made in the books and their appearance on the bank statements
- Some items on the bank statement may have gone unrecorded in the cash analysis book (such as bank charges, interest, standing orders, direct debits)
- Cheques issued by the organisation, particularly towards the end of the month, may not yet have cleared through the account, and therefore do not appear on the statement.
The main reason for the bank reconciliation is to make sure that your accounting records are complete. There may still be errors – you may have put something under the wrong heading – but at least you will know that you have recorded everything you should.
Without the bank reconciliation, there is a serious risk that your accounting records are unreliable.
Read the nine steps to follow for effective bank reconciliation, from CASH-ONLINE.
This page is a summary of information contained in the full online toolkit.
