How to Prepare a Bank Reconciliation Statement for Month-End Close

A bank reconciliation statement compares the cash balance recorded in the entity’s books with the balance shown on the bank statement for the same period. The goal is to identify and explain any differences so that the cash book reflects the true amount of money available. This process supports accurate month end close and reliable financial reporting.

Understanding what a bank reconciliation statement shows

The statement starts with the cash book balance and adds or subtracts items that the bank has recorded but the entity has not yet entered. Common additions include deposits that have been sent to the bank but not yet credited, known as deposits in transit. Common subtractions include checks written and mailed that have not yet cleared the bank, called outstanding checks. Bank service charges, interest earned, and any errors in either record are also listed.

Reasons for differences between book and bank balances

Differences usually arise from timing gaps between when a transaction is recorded in the books and when the bank processes it. Examples are deposits in transit and outstanding checks. Other causes include bank fees that the entity has not yet recorded, interest credited by the bank, direct debits set up by the bank, and mistakes such as transposed numbers or omitted entries.

Procedure to prepare a bank reconciliation

First, obtain the latest bank statement covering the reconciliation period. Second, update the cash book for any items that appear only on the statement, such as bank charges or interest. Third, list all deposits in transit and outstanding checks. Fourth, calculate the adjusted cash book balance by adding deposits in transit and subtracting outstanding checks. Fifth, compare this adjusted balance to the ending balance on the bank statement; they should be equal.

Approach to investigating and resolving discrepancies

When the two balances do not match, examine each listed item for accuracy. Verify the amounts of deposits in transit and outstanding checks against supporting documents such as receipts and check registers. Look for data entry errors in the cash book, such as reversed digits or missing entries. If a bank charge or interest appears unclear, request a copy of the relevant bank advice. Correct any errors found and repeat the calculation until the balances agree.

Guidelines for involving a specialist

If differences persist after thorough review, or if the reconciliation reveals signs of fraudulent activity, it is time to seek specialist help. Situations that warrant escalation include repeated unexplained variances, large unidentified bank adjustments, or evidence of data damage in the accounting file. At that point, preserve the original files and refer the matter to a data repair or forensic accounting service.