How to prepare the Bank Reconciliation Statement

Accounting for Internal Control

What you need

• A complete cash book (bank column) up to the reconciliation date, showing the closing balance.
• The latest bank statement from the bank for the same period.
• The ability to compare both records, tick matching items and flag items that do not match.
• A calculator and the correct statement format (starting from the updated cash book balance).

Step by step

1. 1

   Gather and compare both records

   Prepare Perniagaan Setia's cash book (bank column) and bank statement for the month ended 31 December 2024. The cash book shows a debit balance of RM3,200 (a favourable balance) while the bank statement shows a balance of RM4,500. Compare each entry one by one and tick every item that appears in both records. Unticked items are the causes of the difference that must be investigated.

2. 2

   Identify items appearing only on the bank statement

   These must be entered into the cash book because the bank has already recorded them but the business has not. For Perniagaan Setia: a dividend of RM300 received directly by the bank (not yet recorded), bank charges of RM50, and a standing order for insurance of RM150. These items are used to update the cash book in the next step.

3. 3

   Update the cash book

   Record the items above in the cash book. On the debit (receipts) side: Dividend Received RM300. On the credit (payments) side: Bank Charges RM50 and Insurance (standing order) RM150. Double entry: Debit Bank RM300, Credit Dividend Received RM300; Debit Bank Charges RM50, Credit Bank RM50; Debit Insurance RM150, Credit Bank RM150. Calculate the new balance: RM3,200 + RM300 − RM50 − RM150 = RM3,300 (updated cash book balance).

4. 4

   Identify timing-difference items

   These are already recorded in the cash book but have not yet appeared on the bank statement because of timing. For Perniagaan Setia: a cheque of RM1,700 paid to a supplier (Invoice 412) that the payee has not yet presented to the bank (an unpresented cheque); and a deposit of RM500 banked on 31 December but not yet credited by the bank (a deposit not yet credited).

5. 5

   Write the heading and starting balance

   Write the heading: 'Perniagaan Setia, Bank Reconciliation Statement as at 31 December 2024'. Start the statement with the updated cash book balance of RM3,300 (a debit/favourable balance). Do not use the original RM3,200; the starting figure must be the balance updated in Step 3.

6. 6

   Add unpresented cheques

   Add the unpresented cheque of RM1,700 to the updated cash book balance because this money is still with the bank (the bank has not deducted it from the account yet). RM3,300 + RM1,700 = RM5,000.

7. 7

   Subtract deposits not yet credited

   Subtract the deposit not yet credited of RM500 because the bank has not added this money to the account yet. RM5,000 − RM500 = RM4,500. The final figure of RM4,500 must equal the bank statement balance of RM4,500.

8. 8

   Check and file

   Confirm that the statement's final balance (RM4,500) matches the bank statement balance. If they agree, the reconciliation is correct. File the statement as evidence of internal control. Quick formula: updated cash book balance + unpresented cheques − deposits not yet credited = bank statement balance.

Second example

The second example involves an overdraft. Kedai Harmoni prepares its statement as at 30 June 2025. After updating the cash book (entering bank charges of RM40 and overdraft interest of RM60), the updated cash book balance is a credit balance of RM1,200 (an overdraft). There is an unpresented cheque of RM500 and a deposit not yet credited of RM800. The statement starts with the updated cash book balance (overdraft) of RM1,200 written in brackets as (1,200). Add the unpresented cheque of RM500 and subtract the deposit not yet credited of RM800: (1,200) + 500 − 800 = (1,500). The final balance shows an overdraft of RM1,500 that matches the bank statement balance. Note that the same rule applies (add unpresented cheques, subtract deposits not yet credited) even when the opening balance is an overdraft.

Some questions ask you instead to start from the bank statement balance and end with the cash book balance. In this format the direction is reversed: subtract unpresented cheques and add deposits not yet credited. Always read the question carefully to know which balance is the starting point.

Common mistakes

Related chapter: Accounting for Internal Control →

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