Guide to Bookkeeping – Monthly Bank and Cash Controls

Appendix 3 shows examples of a bank and cash summaries.  First we will look at the principles behind the bank control, or reconciliation.

Bank Reconciliations

If you have recorded everything that has gone through your bank during the month on your Income and Expenditure pages/spreadsheets, then they ought to mirror, to some degree, your bank statements.

A simple test to ensure that the pages/spreadsheets are complete is to prepare a reconciliation, which is far simpler than, perhaps, people think.  Here follows an explanation for each line on the summary:

Balance brought forward
This is the amount that was agreed as your closing bank balance, which is taken from the bank summary for the previous month.  If you were overdrawn at the end of the previous month then you need to show this as a minus figure.

 Bank Deposits
This will be the total of the ‘Bank’ column on your income page.

Bank Payments
This will be the total of the ‘Bank’ column on your expenditure page.

Then, perhaps obviously, you need to add the balance brought forward to the deposits, and then deduct the withdrawals.  The resulting figure should equal the balance at the month end on your bank statement.

If it doesn’t agree to the balance on you bank statement, then something has been missed off your pages/spreadsheets.  You will need to work through your bank statement to find where the error has occurred.

 Cash Reconciliation

 The same principles apply to reconciling the cash.

It stands to reason that you may have a cash-in-hand balance at the end of your previous month.  You will start the current month bringing this balance forward.  To this, you will have to add any cash receipts, and deduct any cash payments.  This should leave you with a cash balance at the end of the month. 

However, it is not enough to just leave this as a balancing figure on paper.  This ought to equal the actual amount of cash-in-hand that you physically hold on that date within the business.  Again, any difference means that not all transactions have been recorded, and again, you need to revisit your pages/spreadsheets to try to establish what has been missed.

It is likely that by the time you have reached the end of a month, that any business cash may have been spent on personal items.  There is nothing wrong with this, but these amounts should be recorded as drawings.  No other detail is required regarding drawings.

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