Bank Reconciliation definition

Bank reconciliation is the analysis and adjustment of differences between the cash balance on the bank statement and the balance showed in the holders account records. It is used to know if the bank records and company records are correct/accurate. E.g where a check is being issued but yet to be presented

    

Discrepancies between the bank statement & cash book

1.     Timing differences: this is when a cheque is issued at the end of month, such check will not reflect in that month but the next month.

                                     Issues under time differences

a.      Unpresented check which may arise as a result of late presentation of check at at the bank as at the time of reconciliation. This can be a post dated check

b.     Uncredited check which may be a check that does not mean the compliance of what the bank was given. This can be dishonoured or returned check. Another error is inter changing of name e.g Steven V. Steve

2.     Service charge & interests

3.     Credit transfer made directly to the customer

4.     Dividends made directly to the bank

5.     Outstanding others, whereby a bank made payment to another on behalf of a customer

Bank Reconciliation terminologies

1.     Deposit in transit: this is a cash which is being received and recorded but has not being recorded into the book of the bank

2.     Outstanding check: this is a check payment that has been recorded but no deduction of cash has been done since the check has not been cleared in the bank account.

3.     Service charge: this is an expenses by the bank on the service rendered to customers which is listed on the bank statement

4.     Non sufficient funds: this are dishonoured check which arise as a result of having less funds in an account.