Completion of Bank Reconciliation
Completion of Bank Reconciliation
Process of Bank Reconciliation
Comparison:
- Begins with comparing the company’s cash account records (cash book) to the bank statement.
Identifying Differences:
- Differences between the two could be due to cheques not yet presented, bank charges or errors. Highlight and investigate these variances.
Adjustments:
- Make necessary adjustments to the cash book for items listed in the bank statement but not in the cash book, like bank fees or interest earned.
Reasons for Bank Reconciliation
Accuracy Checks:
- It ensures the accuracy of the company’s financial records by verifying the cash available in the bank.
Error Detection:
- Helps in detecting errors like duplications, omissions, or fraud that can affect the business’s liquidity position.
Cash Flow Management:
- Provides accurate data for managing cash flow by reflecting the true cash balance.
Issues with Not Completing Bank Reconciliation
Mismanagement of Funds:
- Without bank reconciliation, a business may mismanage its funds leading to liquidity issues.
Undetected Errors:
- Errors in record-keeping might go undetected, causing inaccuracies in financial statements.
Fraud Vulnerability:
- Businesses become more vulnerable to fraud if transactions are not reconciled regularly.
Bank Reconciliation Documents
Bank Statement:
- A document issued by the bank listing all the transactions passing through the bank account over a certain period.
Cash Book:
- A book where a business records all its cash transactions, including payments made and received that pass through its bank account.
Reconciliation Statement:
- A document that explains the differences between the bank balance shown in an organisation’s bank statement and the corresponding amount shown in its own accounting records.