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Bank Reconciliation

At the end of each calendar month, banks typically send their customers a bank statement, a summary of all the transactions that occured in their account throughout the month, as well as a beginning balance and an ending balance typically after each transaction. Banks also provide a copy of each cheque that was written and withdrawn from the account during the month. 

After receiving a bank statement, a company typically prepares a bank reconciliation. A bank reconciliation is a schedule that explains any differences between the bank's and the companys records of cash. These differences are referred to as reconciling items. If the difference results only from transactions not yet recorded by the bank, the company's record of cash is considered to be correct. However, if there still a difference, the company's or the bank's records may need to be adjuster. As a result, the bank reconciliation is a good tool to use as an internal control. 

There are two forms of bank reconciliation. One form reconciles from the bank statement balance to the book balance or vice versa. The other form reconciles both the bank balance and the book balance to a correct cash balance. This latter form is more popular: 


Adjusting journal entries are prepared for all the addition and deduction items the appear in the 'Balance per company's books' section of the bank reconciliation on the bank reconciliation done at the end of the period. 

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