Company Bank Reconciliation Example

To prepare a company's bank reconciliation is so important for showing cash and bank balance in current assets correctly when we prepare company's balance sheet. It also helps to prepare correct income statement because with it we can find all the mistakes relating to receipt revenue and payment of expenses. If company will prepare regular BRS after the month or quarter, there is less chance of doing any fraud because BRS making employees and cash handling employees will be different.

So, after caring the importance of company's bank reconciliation statement, company will not ignore it. Company will manage the system of making its bank reconciliation statement. If you are the employee of any company  who will be responsible for preparing bank responsible statements, you should learn everything about this. We recommend to our past written resources on BRS.


First, you should learn :


How to Prepare a Company's Bank Reconciliation?


Second, you should learn:


How to Make a Company's Automatic Bank Reconciliation in Tally.ERP 9?


Second, you should learn :


How can You Control on Cash with Bank Reconciliation?


Now, one of important part of your learning company's bank reconciliation through practical sample example. It will help you to understand this practical.


So, your help we are giving a sample company bank reconciliation example. 


In this example, we take HINDUSTAN PETROLEUM CORPORATION LIMITED's Bank Reconciliation.



Hindustan petroleum corporation does the business of petroleum products and its head office in Mumbai. It has lots of subsidiaries and joint-venture partners for doing this business.

Hindustan petroleum corporation records all bank transactions in his cash account which is in his general ledger. His banks also records the transactions in their books, at the end of month banks send bank statements on email. When both in the hand of company, it will be very easy to find the differences between bank record as per bank and bank record as per company's record through BRS. Because this is big company, thousands of cheques are written in day on the company and by the company. So, there is chance of delay of collection or payment of these cheques, due to this, there is the chance of differences in both bank and company's record.



Bank Reconciliation Process of HPCL Fundamentals:


HPCL has done the bank reconciliation process in two steps.


Step 1.
There are lots of reasons, banks of HPCL do not show the correct amount of bank balance. So, we adjust bank balance with cash book.



First Way
Balance per Bank Statement on Aug. 31, 2013

Adjustments:



Add or Deduct: Bank errors

Adjusted/Corrected Balance per Bank

Important note : 

1. Deposits in transit 

It means, all the cash which is deposited by company but still did not deposited and recorded by bank at closing of month when we are making BRS. So if we want to show bank statement balance as per cash book's balance, we have to add in bank statement's balance.

2. Outstanding checks 

When HPCL has issued the cheques for payments, then recorded it in payment voucher but if bank did not clear. It means, our bank statement balance is showing excess. So, we deduct it.

3. Bank Errors
If there is any mistake in our bank statement relating to amount or debit or credit our account, then we have to add or deduct it as per the case. But we have to make the base of company's cash book.


Step 2.


There are lots of reasons our cash book book do not show correct balance. So, we make the list and adjust our cash book balance as per bank statement balance.

2nd Step
Balance per Books on Aug. 31, 2013

Adjustments:





Add: Notes Receivable collected by bank

Add or Deduct: Errors in company's Cash account

Adjusted/Corrected Balance per Books
Important Notes :

1. Bank service charges 
Time to time bank automatically debit our account for debit service charges. These services may be collection or clear the check or ATM charges. So, correct balance will be decreased but our cash book balance will show more, so we will deduct this balance from our cash book balance.

2. NSF Check and Fees 
NSF checks are those which company sends to bank for collection and pass the entry of receipt of cash but when party from where HPCL wants to get money have not sufficient amount, this check will be not sufficient balance. It is the dishonored of company's check. So company's  bank will not credit money to HPCL. If credited, it will debit for rejecting this credit. So, HPCL will deduct this NSF Check amount and bank fees.

3. Check printing charges 
Sometime bank may deduct the amount of check printing without notice. So, it should be deducted from company's cash book.

 4. Interest earned
Any earning from interest will be automatically credit. So, company's cash book will add this amount in his balance.

5. Notes Receivable
When company's bank account gets notes receivable and its interest, bank balance will increase but there is no information to company. When company gets its information from bank statement, it will increase its cash book balance.
 are assets of a company. When notes come due, the company might ask its bank to collect the notes receivable. For this service the bank will charge a fee. The bank will increase the company's checking account for the amount it collected (principal and interest) and will decrease the account by the collection fee it charges.Since these amounts are already on the bank statement, the company must be certain that the amounts appear on the company's books in its Cash account.

Step 3 

Now, HPCL will compare both first step's adjusted amount and second step's adjusted amount. It should be matched. If there is the different, it means, there is more need to adjust after more enquiries of both cash book and bank statement. 


Step 4
HPCL company will pass the adjustment entries on the basis step 2 only in bank reconciliation for matching both balance.
For example adjustment entry of bank charges will be 

Bank charges account Dr.

Bank account Cr. 

Above is the fundmental of Bank reconciliation of HPCL. Now, we are discussing more practical of this process. HPCL is using Oracle's JD Edwards EntrpriseOne  ERP system. It has two bank account one is non-operating bank account and other is operating bank account. Both follow same steps. 

Following are its steps for bank reconciliation through ERP System



1. Bank Statement Entry/ Upload


    When bank emails the bank statement in PDF file or excel file, company will upload it in its ERP system which will covert it in system's format and it can be seen after uploading. Following is its screenshot.





2. Reviewing JDE Bank Statement

    Now, reviewing process will start. You can review it in the system check it whether system correctly upload it or not.
  • Bank Statement Header
Beginning Balance
Enter the opening balance as per Bank Statement
Ending Balance
Enter the closing balance as per Bank Statement
Total Withdrawal
The system updates this total after entry of each transaction with a negative amount in the detailed part of the form.
Total Deposit
The system updates this total after entry of each transaction with a positive amount in the detailed part of the form.
Remaining Amount
After you enter the first transaction, the system displays a remaining amount. The remaining amount changes as you enter each subsequent transaction. When the remaining amount is zero, the statement is in balance.
  • Bank Statement Detail

Sr. No.
Field
NOC Accounts
Main Bank
Accounts
Operating Accounts
Description
1
Transaction Code
BDS
BDS / CK / JE / OTH / TT
BDS / CK / JE / OTH / TT
Hard Coded
2
Amount
Required
Required
Required
Amount deposited/withdrawn
3
Value Date
Required
Required
Required
Original Date – Value Date (Date on which the bank debits/credits the bank account.
4
GL Date
Required
Required
Required
Date on which the transaction is booked
5
Reference
BDS Number
HPCL Location Code
Cheque Number for BDS / CK, 0 for others

6
Doc. Type
Required
Required
Required

  • Transaction Code Glossary:
Transaction
Code
Description/ usage
Document Type
JE
You can write a journal entry to record an adjustment made by the bank, such as a service charge or a Telegraphic Transfer (TT) fee. When you reconcile bank statements, the system updates the Account Ledger table with a journal entry between the bank account and the G/L account that you specify in the Account Number field in the Details option of the exit bar. During Reconciliation, the system marks transactions with this code as reconciled.
JB
BDS
This transaction code is used in case of BDS credits and TT entries, which have to be reconciled for Value Date, Amount and document reference. Please note that this code indicates to the system that for reference, the matching has to be done from Bank Statement Reference (Payment/ Rcpt No field) to Reference 2 field of the General Ledger Reconciliation Work Table file.
JG
OTH
This transaction code is used for all other transactions including Payment and Journal Entries and the matching is done based on Document Reference Number (Payment/ Rcpt No field) to Reference 1 of the General Ledger Reconciliation Work Table file.
JB
TT
This transaction code is used to create Transfer entries (in/out) to other bank accounts. There is no need to give the other account number in the Detail exit bar, as this account number is hard coded in the Bank Account information set-up. During Reconciliation, the system marks transactions with this code as reconciled.
JB

3. Auto Reconcile Void Receipts and Payments:
As per the Oracle resources, system will auto reconcile all void receipts.It also have power to auto reconcile all void payments which will be zero amount.You can go here by going to bank reconciliation menu in the system.

4. Refresh Reconciliation File

There is advance refresh reconciliation program in the same system which you have to run with this, system will be refresh by gaining both bank statement data and general ledger account's data. 

5. Bank Reconciliation Manually

In the system, you will run bank reconciliation form where you reconcile your bank statement with your bank account manually.

The system also updates the Amt to Reconcile field using this formula: 

Bank Balance + Outstanding Debits + Outstanding Credits)–Book Balance = Amount to Reconcile
  • Bank Balance = the amount on your bank statement.
  • Outstanding Debits and Credits = the records in the F0911 table that have not been marked as reconciled.
  • Book Balance = the account balance in the F0902 table. The system includes balance forward amounts for balance sheet accounts.
Now, with this, we will able to match the records between general ledger bank account with the bank statement records. For this, we run the application "proof"

PREPARATION

From your location specific menu, select GL Bank Statement Reconciliation – Proof/Final (R55B170).
At the Data Selection dialog box, verify that it contains the short account ID of your GL Bank Account and reconciliation code of not equal to ‘R’. Then click ‘Ok’ to submit the data selection.
Upon submitting the data selection, the system will prompt at Processing Options dialog box. Review and/or update the Processing Options. Of these, the Variance tab contains the iterations, which will be the basis on which the records are reconciled. Use the information below for entering the iterations as required for running the Bank Reconciliation.




Iteration





Transaction Code
Main/Local Bank
Consolidation
0
1
2
3
4
5
BDS
Main
Off
NA
Y
Y
Y
Y
N
BDS
Local (NOC)
On
NA
N
N
N
N
Y
BDS
Local (NOC)
Off
NA
Y
Y
Y
Y
Y
OTH / CK
Local (Optg)
On
Y
N
N
N
N
N
OTH / CK
Local (Optg)
Off
Y
N
N
N
N
N



The values in the above table determine the basis for the iteration:
  • 0 = Check No + Amount
This iteration compares the Check No and Amount fields on the GL and Bank Statement side for an exact match.
  • 1 = Value Date + Amount
This iteration compares the Value date of the Bank statement with the value date in the GL (Check Date field) and the amount fields on both sides for an exact match.
  • 2 = Doc No + Date + Amount
This iteration compares the Value date of the Bank statement with the value date in the GL (Check Date field), the Amount fields on both sides and the Reference 2 field with the Pymnt/Rect Number field on the Bank Statement side. It also checks for BDS or Reference 1 field in the GL with the Pymnt/Rect Number field on the Bank Statement side for other transactions for an exact match.

  • 3 = Doc No + Date (+/- 5 days) + Amount
This iteration uses the same fields as that in Iteration 2 but with a number of days tolerance set to 5 days
  • 4 = Doc No + Date + Amount (+/- Tolerance)
This iteration uses the same fields as that in Iteration 2 but with a user defined tolerance of amount depending upon the value set in another processing option for this purpose. While using this iteration it is important to populate the Processing Option no 2 on the Variance tab with ‘1’ to automatically create a Journal entry for the write off amount. Also the Account Number to be used for the write off is to be provided in Processing Option no.5 of the same tab.
  • 5 = Doc No + Amount
PROOF SHEET MODEL
BANK RECONCILIATION PROOF SHEET - MAY-2013



SBI JNPT Dronagiri - NOC Account [Vashi RRO]



BANK A/C NO. 11000.237100.1156101 (Short ID: 05499327)







BALANCE AS PER GL  

0.00





LESS : DRGL
0.00

LESS : DRBS
0.00
0.00





ADD : CRGL
0.00

ADD : CRBS
0.00
0.00





TOTAL

0.00





BALANCE AS PER B/S

0.00

DIFFERENCE
0.00





A]                                                             DRGL



DATE
BDS/CHQ/REF NO.
AMOUNT
REMARKS








TOTAL  DRGL
0.00






B]                                                               DRBS



DATE
BDS/CHQ/REF NO.
AMOUNT
REMARKS




TOTAL  DRBS
0.00






C]                                                               CRGL



DATE
BDS/CHQ/REF NO.
AMOUNT
REMARKS




TOTAL  CRGL
0.00






D]                                                               CRBS



DATE
BDS/CHQ/REF NO.
AMOUNT
REMARKS




TOTAL  CRBS
0.00


6. Reconcile self-balancing items (Bank Statement side):
For reconcile self-balancing items, we will run self-balancing programs in the system. It will rectify any wrong entry in bank statement

As per researcher's note
After the Bank Reconciliation is run in final mode for the various iterations required, run the self-balancing programs to eliminate self-balancing items. For example, wrong entries reversed by bank in the bank statement, rectification entries passed in the General Ledger. The report will list amounts with records with the same amounts but opposite signs having the same Reference number.

For Main Bank Account: This will result in a report listing the transactions eligible to be marked as self-reconciling. If user wishes to drop any transaction from the list as self-reconciling, he will mark the change by changing the transaction code to OTH. In Final mode, the application will update the transaction type as BK for unchanged listed transactions.
For Operating Bank Account: After Bank Statement upload, the application is to be run in proof mode. This will result in a report listing the transactions eligible to be marked as self-reconciling.

7. Reconcile self-balancing items (General Ledger side):
The application devised for this purpose is to be run separately. This report is to be used for transactions with Batch Type G i.e. Journal Entries which are entered for reversal transactions.
In proof mode, this program lists the transactions in the General Ledger with similar amounts of opposite signs. Run this with a data selection of the account ID of your Bank Account for a particular date range to be provided in the processing options.
Using this report mark / update the reversal transactions with the same Reference number as that of the original transaction. The Reference number needs to be populated in Reference 1.
The Reference 1 field can be populated using the “Features” form exit of the Journal Entry Screen.
The application is then to be run in final mode. On finding records with matching Reference 1 values and similar amounts with opposite signs, the application will mark these as reconciled in the Account Ledger (F0911) file.
It is necessary to run the Refresh Reconciliation program after this to update the Reconciliation Work file.
Run the Bank Reconciliation application again in final mode to get the final list of unreconciled transactions.


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Accounting Education: Company Bank Reconciliation Example
Company Bank Reconciliation Example
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