Bank Reconciliation - 3.3 Understanding Bank Statements

This section explains the purpose and use of bank statements, which are crucial for performing a bank reconciliation.

What is a Bank Statement?

A bank statement is a record of all the transactions that have occurred in your bank account over a specific period, usually a month. It provides a detailed summary of your account activity.

Key information found on a bank statement includes:

• Date of the transaction
• Description of the transaction (e.g., payment received, direct debit, fee)
• Amount of the transaction (credit or debit)
• Balance at the end of the period

Purpose of a Bank Statement

Bank statements serve several important purposes:

• Record Keeping: They provide a historical record of all transactions for accounting purposes.
• Verification: They allow you to verify the transactions recorded in your business's cash book against the bank's records.
• Identification of Errors: They help identify any errors made by the bank or by the business.
• Reconciliation: They are essential for preparing a bank reconciliation statement.

Types of Bank Statements

There are generally two main types of bank statements:

1. Printed Statements: These are paper statements provided by the bank.
2. Electronic Statements: These are statements accessed online through the bank's website or mobile app.

Understanding a Bank Statement

A bank statement will typically show a list of transactions in chronological order. Each transaction will have a reference number, a date, a description, and an amount.

Date	Description	Debit (£)	Credit (£)	Balance (£)
2023-10-05	Payment from Customer A	100
2023-10-12	Direct Debit - Supplier B		50
2023-10-20	Interest Earned		5
2023-10-31	Bank Fee		2

The balance at the end of the statement is the amount your account is worth on that date.

Using Bank Statements for Reconciliation

The bank statement is a primary source of information used in the bank reconciliation process. By comparing the transactions on the bank statement with the corresponding entries in the business's cash book, discrepancies can be identified and reconciled.