What is a Bank Reconciliation?

by Angel
(South Africa)

Q: When talking about a bank reconciliation, what exactly are we talking about?

A bank reconciliation is the comparison of the bank statement you get from your bank with the business records concerning the bank account.

The bank statement comes once a month normally and shows all deposits, payments, etc.

You compare this to your cashbook (or cash receipts journal and cash payments journal) and look for any discrepancies.

If there are discrepancies, you draw up a bank reconciliation statement. This statement is for your own records and can also be sent to the bank so they correct any errors regarding the business bank account.

Make sense?

For the full lesson on bank reconciliations together with practice questions, order the site's official basic accounting book.

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Bank Reconciliation Process
(And Calculating Cost of Sales)

by Musa
(South africa)

Q: 1. Please simplify the bank reconciliation process - what is the bookkeeper required to do?

2. Also, how do you calculate the cost of sales?

A: 1.
Bank reconciliation process for a bookkeeper:
a) Get the bank statement for your business from the bank (usually received by mail);
b) Get the internal records regarding the bank account (cashbook or crj plus cpj and also the bank T-account, etc.);
c) Compare a) to b) and tick off all items that correctly appear on both the bank statement and in the business records; look out for month-end items that have been excluded from the bank statement (such as cheques received from customers that have not cleared) or from the business bank records (such as bank charges and interest)
d) Create a bank reconciliation statement to show any discrepancies (start and end the statement with the balances per the bank statement and per the business records);
e) Print off copies of the bank recon statement and send one copy to the person at your bank who manages your business bank account.

For a full bank reconciliation example and bank reconciliation exercises, check out this site's official basic accounting book.

2. Cost of sales for a periodic system is calculated as follows:

Opening inventory + Purchases - Closing Inventory

See the lesson on cost of goods sold for more details.

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