Chapter 6- steps in preparing the bank reconciliation

Which items require adjustment?

A bank reconciliation often identifies unrecorded items that need recording. Only the items reconciling the book balance require adjustment.

Reconciling additions

All reconciling additions to book balance are debits to cash. Credit depends on reason for addition.

Reconciling subtractions

All reconciling subtractions from book balance are credits to cash. Debit depends on reason for addition

Step four

Compute the adjusted bank balance, also called corrected or reconciled balance.

Step eight

Compute the adjusted book balance, also called corrected or reconciled balance.

Step three

Identify and list any outstanding checks and any bank errors overstating the bank balance. Deduct them from the bank balance.

Step six

Identify and list any unrecorded credit memoranda from the bank, interest earned, and errors understating the book balance. Add them to the book balance

Step seven

Identify and list any unrecorded debit memoranda from the bank, service charges, and errors overstating the book balance. Deduct them from the book balance.

Step two

Identify and list any unrecorded deposits and any bank errors understating the bank balance. Add them to the bank balance.

Step one

Identify the bank statement balance of the cash account (balance per bank).

Step five

Identify the company's balance of the cash account (balance per book)

Step nine

Verify the two adjusted balances from steps 4 and 8 are equal. If yes, they are reconciled. If not, check for mathematical accuracy and missing data.