Lessons · Accounting · the bank reconciliation
The bank reconciliation, in steps
The bank's balance and the book's balance differ for reasons you can list. A reconciliation adjusts each side for what the other has not seen yet, until they meet. Anything left over is an error.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
Month-end. The bank statement says 4,120 and the books say 3,560, and the owner asks which is right. Both are, until you have reconciled them, and after that you know which one has a mistake in it.
How to think about it
Two columns. Start the first with the bank's figure and adjust it for what the bank has not seen: cheques you wrote, deposits you made. Start the second with the book figure and adjust it for what you have not seen: fees, interest. The two should meet.
Worked example
Bank statement balance: 4,120The bank's side, as printed.
− outstanding cheques 800Written and posted in the books, not yet through the bank.
+ deposits in transit 200Banked and posted in the books, not yet on the statement.
Adjusted bank = 4,120 − 800 + 200 = 3,520What the bank would say if it had seen everything.
Book balance 3,560 − bank fee 40 = 3,520 → they meetThe fee was on the statement and not in the books. Record it, and both sides say 3,520.
Your turn
The bank statement says 6,300; outstanding cheques are 950; deposits in transit are 300. Write the adjusted bank line with the cheques filled in.
Adjusted bank = 6,300 − + 300 = 5,650
Solve one, graded on the server
The trap
Adjusting the wrong side. Outstanding cheques are the bank's blind spot, so they go on the bank side. A fee is the book's blind spot, so it goes on the book side and gets a journal entry.