understand the use and purpose of a bank statement
3.3 Bank Reconciliation
What is a Bank Statement?
A bank statement is a monthly record sent by your bank that lists every transaction in your account – deposits, withdrawals, fees, and interest. Think of it as a diary that only the bank can read. 📑
Why Do We Need It?
It helps you verify that the money you think you have matches what the bank says you have. If the two numbers don’t match, you need to find out why. This is called bank reconciliation. 🔍
Steps in Bank Reconciliation
- Start with the bank statement balance. This is the amount the bank says you have at the end of the month.
- Adjust for deposits in transit. Money you’ve received but the bank hasn’t recorded yet.
- Subtract outstanding checks. Checks you’ve written that the bank hasn’t cleared.
- Check for bank fees and interest. These appear on the statement but may not be in your books.
- Update your ledger. Record any missing entries so your books match the bank.
- Confirm the adjusted balance equals your book balance. If they match, the reconciliation is complete.
Example
Suppose your bank statement shows a balance of $5,000 at the end of March.
- Deposits in transit: $800
- Outstanding checks: $1,200
- Bank fee: $25
- Interest earned: $15
Calculate the adjusted bank balance:
$5,000 + 800 - 1,200 - 25 + 15 = $4,590
If your ledger shows $4,590 after recording the missing entries, the reconciliation is successful. 🏦
Key Formula
The core idea can be written in LaTeX:
\[ \text{Adjusted Bank Balance} = \text{Bank Statement Balance} + \text{Deposits in Transit} - \text{Outstanding Checks} - \text{Bank Fees} + \text{Interest} \]
Revision
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