Financial accounting has different topics and one of them is Bank
Reconciliation and its preparation. In this article you will explore
this concept and find some example
s which can be appear while reconciling cash book and bank statement in practice. Such exercises is done on a monthly basis, therefore is quite important.
Concepts
Considering the concept of Bank Reconciliation, it relates to the end of the accounting period, when we need to compare Cash Book and Bank Statement balances and clarify differences between these two balances. In practice it is a very rare case when these two balances are be equal, therefore reconciliation process is important and to be done at the end of each month.
During the Bank Reconciliation process we will need to identify types of the differences and decide whether adjustments to the cash accounting records are needed or not. Necessity to make such adjustments depends on the type of difference, i.e.:
As mentioned difference between cash balance in the accounting book and balance in the statement from bank might be caused by certain items, which are not included into the cash accounting records during the accounting period, but need to be included.
The examples can be:
Afterwards we proceed with timing differences. The examples are checks recorded in the cash book, but not yet presented to the bank at the end of the accounting period or checks proceeded by the bank, but not yet recorded in the cash accounting records.
To make a reconciliation between the accounting records and bank statement, we proceed further with the adjusted cash book balance, add or deduct timing differences and get the final bank statement balance. All the reasons for timing differences have to be explained in this process.
http://ezinearticles.com/?Financial-Accounting-Course---Bank-Reconciliation&id=5767367s which can be appear while reconciling cash book and bank statement in practice. Such exercises is done on a monthly basis, therefore is quite important.
Concepts
Considering the concept of Bank Reconciliation, it relates to the end of the accounting period, when we need to compare Cash Book and Bank Statement balances and clarify differences between these two balances. In practice it is a very rare case when these two balances are be equal, therefore reconciliation process is important and to be done at the end of each month.
During the Bank Reconciliation process we will need to identify types of the differences and decide whether adjustments to the cash accounting records are needed or not. Necessity to make such adjustments depends on the type of difference, i.e.:
- Informational difference - it represents information which is included into the Bank Statement, but not reflected in the cash accounting records.
- Timing difference - it is caused by different timing in recording items in the Cash Book and Bank Statement. No adjustments are made and these items are only explained in the Bank Reconciliation.
As mentioned difference between cash balance in the accounting book and balance in the statement from bank might be caused by certain items, which are not included into the cash accounting records during the accounting period, but need to be included.
The examples can be:
- mistakes - items erroneously committed,
- payments made directly to the bank account,
- payments made directly from the bank account,
- bank charges.
Afterwards we proceed with timing differences. The examples are checks recorded in the cash book, but not yet presented to the bank at the end of the accounting period or checks proceeded by the bank, but not yet recorded in the cash accounting records.
To make a reconciliation between the accounting records and bank statement, we proceed further with the adjusted cash book balance, add or deduct timing differences and get the final bank statement balance. All the reasons for timing differences have to be explained in this process.
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