INTERNAL CONTROL OVER CASH

BANK RECONCILATION STATEMENT:

“Bank reconciliation is a schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositor’s accounting records.”

Following differences could appear in both records:

DEPOSITOR’S BALANCE		BANK BALANCE
Add	Direct deposit	Add	Deposit in transit
Less	NSF(not sufficient funds) Service charges Dishonor cheque	Less	Outstanding cheque
Add/Less	Book error	Add/Less	Bank error

STEPS IN PREPARING A BANK RECONCILATION STATEMENT:

1. Compare deposits listed in bank statement with the deposits shown in the accounting records.
2. Compare checks paid by the bank with the corresponding entries in the accounting records.
3. Add to the depositor’s balance, any credit memoranda issued by bank.
4. Deduct from depositor’s balance, any debit memoranda issued by bank.
5. Make appropriate adjustment for any bank/book error.
6. Compare the adjusted balances of both statements (bank statement and depositor’s balance)
7. Prepare journal entries to record any item in the bank reconciliation not recorded in accounting record of depositor.