What is deducted from the bank reconciliation statement when starting with balance as per bank statement?

10 January, 2022

4 mins read

What you'll learn

• The bank reconciliation process matches the company’s cash book with the bank’s passbook
• Manual bank reconciliation is error-prone and does not offer real-time data
• Automated bank reconciliation reduces inaccuracies and helps detect fraud

Listen to the blog:

CONTENT

4 Common Examples of Bank Reconciliation Statement

Challenges Faced While Preparing Bank Reconciliation Statements

Automation as a Tool to Reduce Errors in Bank Reconciliation

4 Common Examples of Bank Reconciliation Statement

Before deep diving into the practical examples of bank reconciliation statements, let us go through a few terminologies which are used in a recurring way while explaining the examples:

Example #1: Cash Book Balance More Than Bank

ABC Corp, has a balance of $2000 as per passbook as on 31st march 2021. However, the balance as per cash book as on 31st march 2021 is  $2210.

Let’s Understand the Transaction Details

1. A check of $500 was deposited, but it is not yet processed by the bank.
2. Bank charges of $60 were recorded in the passbook, but not in the cash book.
3. Checks worth $300 were issued, but not presented.
4. Bank interest of $50 was recorded in the passbook, but not in the cash book.

Solution #1: Bank Reconciliation Statement(BRS) Format

Example #2: Cash Book Balance More Than Bank

JPN & Co, has a balance of $20,000 as per passbook as on 31st march 2021.

Let’s Understand the  Transaction Details

1. Three checks of $1000, $1500, $1750 were deposited in the bank on 30th december 2021 but were recorded in the bank statement on January 2022.
2. A check of $1000 was issued on 31st december 2021, was not processed.
3. A dividend of $500 on stocks was credited to the bank account, but not recorded in the cash book.
4.  A direct deposit of $600 was made in a bank account by a customer, which was not recorded in the cash book.
5. Bank charges of $60 were entered only in the bank passbook.
6. Balance as per cash book on 31st december 2021 was $22,210.

Solution #2: Bank Reconciliation Statement(BRS) Format

Example #3: Bank Balance More Than Cash Book

Markson’s & co. has a difference in balance as per cash book and bank statement as on 31st march 2021.

Let’s Understand the Transaction Details

1. Balance as per bank statement as on 31st march 2021 is $5000. Balance as per the cash book is $1,650.
2. Checks of $2000 and $1000 issued as on 30th march 2021, but not yet cleared.
3. Insurance paid by the bank is $200. It is not yet recorded in the cash book.
4. An outgoing check of $1000 was recorded twice in the cash book. It is accurately recorded in the bank passbook.
5. Payment of a $500 check is recorded twice in the passbook.
6. Dividends received $600 recorded only in the bank statement and not in the cash book.
7. A check of $500 was deposited on 29th march 2021, but it is not collected.
8. Bank charges of $50 were debited, it is only recorded in the bank passbook.

Solution #3: Bank Reconciliation Statement(BRS) Format

Example #4: Cash Book Balance More Than Bank

Rutherford Inc. has  a difference in the balance as on 31st March 2021 between the bank statement and cash book.

Let’s Understand the Transaction Details:

Cash Book (March 2021) for Rutherford Inc:

Bank statement (March 2021) for Rutherford  Inc:

Solution #4: Bank Reconciliation Statement(BRS) Format

The balance transactions would appear in the Bank Reconciliation Statement:

Challenges Faced While Preparing Bank Reconciliation Statements

Businesses can gain a variety of advantages from effective reconciliation processes. Without good reconciliation, it is difficult determining which expected payments haven’t been made. In addition to detecting fraud, cash book and bank reconciliation
statements allow you to quickly identify any potential disruptions in your cash flow.

However, even today, the bank reconciliation process is highly manual in nature. The accountants are responsible for manually comparing the passbook and the cash book to prepare bank reconciliation statements. Additionally, sometimes due to the delay in cash being processed in the bank, there is a difference between the passbook and the cash book. This might lead to multiple errors or inconsistencies in the bank reconciliation statement. Let us explore the various problems in bank reconciliation process and real-life examples of errors in bank reconciliation:

• Cash-In Transit Not Being Reflected on Passbook

In case of electronic fund transfers such as ACH, wire transfers, credit card payments, the cash is not immediately reflected in the bank, which leads to a difference in the passbook as compared to the cash book.

• Outstanding Checks Not Being Reflected on Passbook

This is a predominant issue which leads to multiple errors in bank reconciliation statements. If there is a delay in checks getting deposited or being processed, the balance on the password would not match the cash book balance.

• Manual Errors Related to Bank Reconciliation

As discussed earlier, bank reconciliation is a highly manual process. The accountants might enter incorrect transaction details or not add the bank fees or interest details mistakenly. These human errors might lead to problems in the bank reconciliation process and eventually the statement.

Automation as a Tool to Reduce Errors in Bank Reconciliation

As an activity, bank reconciliation might seem to be repetitive, however an accurate bank reconciliation is necessary as it provides a clear picture of cash positions in the organization. Bank reconciliation can also aid in the detection of some frauds and transactional manipulations.

However, in order to execute bank reconciliation on a daily basis, it is ideal to embrace automation. Automation in bank reconciliation statement preparation would reduce the inaccuracies and fast-track the process.

Click here to get a glimpse of how to automate bank reconciliation to simplify your financial close.

5 likes

Most Popular Resources

All Topics

Cash Application

Order to Cash

How To Simplify and Improve Credit Risk Management With Automation

Read Now

13 Everyday Remittance Scenarios: Unlucky for Cash Application?

Read Now

Cash Application Done Right: More Sleep at Quarter-End

Read Now

Cash Application Cloud Best Practices Webinar

Read Now

Streamline your order-to-cash operations with HighRadius!

Struggling with Slow Cash Posting? Leverage AI to apply cash faster and accurately even for an inaccurate invoice number

Speak to an Expert

Thank you for signing up! Stay tuned :)

What is deducted from the bank balance in a bank reconciliation?

Which items should be deducted from and added to the bank balance in completing the reconciliation?

How do you balance a bank reconciliation statement?