A friend of mine has given me his records and asked me to produce a Trial Balance seeing that i've now started to study AAT.
I accepted the challenge.
He gave me his bank statements which shows monies paid out and monies received. Some of the payments are by way of cheques. He gave me his purchase invoices. He gave me invoices he produced. He is not VAT registered.
However, I am finding the production of a bank reconciliation statement difficult to do. I know I am supposed to reconcile a cash book to the bank statement balance at the end of the year. However, he has not given me a cash book.
Do I use the previous year's closing balance for Bank on his Trial Balance [there is no cash in previous Trial Balance] as opening balance per cash book and then add all the receipts for the year and take away all the payments and then come up with a closing balance, and then match this to the closing balance of the bank statement? This way I would have created some kind of cash book to compare with the bank statement. What's confusing me though is that the receipts and payments that I use would come from the bank statement and not from a cash book! Confusing and all because my friend did not keep a manual cash book. So now I am confused how to create one so I can do a Bank Reconciliation.
Can anyone quickly advise me what to do and educate me how to do any Bank Reconciliation in the real world?
Replies (6)
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Welcome to the real world
Gail,
This is what we really get from clients in the real world, we call them 'brown paper bag' jobs!
You could prepare a cash book from the bank statements but what I would normally do is just analyse in a spreadsheet the receipts and payments under the necessary headings. You will need to try and work out how the opening balance is made up, by looking at the bank statement balance and identifying any reconciling items.
For the closing balance you will need to identify any transactions that are outstanding by looking at the paying in books and cheques books for reconciling items [ones that are yet to clear the bank].
If there were no reconciling items at the start or end of the year then your cash book would be indentical to the bank statements.
Having said all this I'm a bit concerned that you might be doing all this a bit too soon - what will happen to these accounts when you've completed them. You need to be careful that you're not pratising as AAT will not be keen on you doing that. Hopefully whatever the reason for doing the accounts, someone with a bit more experience will be reviewing them.
Good Luck
You Need
his cheque book and his paying-in book. Then tick all the bank transactions to these. Any entries in these books that have not (yet) appeared on the bank statement must be combined with the bank figure to provide you with a 'cash book' figure for the TB. These 'Unpresented Cheques' and 'Unpresented Lodgements' form the reconciling items for your bank rec.
This is an a_s backwards way of doing it but I guess the incomplete records guys must do it all the time!
You can't really do a bank rec in isolation in these circumstanc
I'd download the bank statement to Excel then split it into 2 worksheets - 1 for receipts and 1 for payments. I'd then list all purchase invoices and sales invoices in other worksheets. Using paying in books and cheque book stubs and any other records you may have I would match up payments and receipts with invoices and put a description and x-ref next to each receipt or payment you have verified. Any unverified items would need to be investigated.
To complete your bank rec you'd need to identify any payments and receipts dated before your reference point that have yet to hit the bank. Add these to your spreadsheet and these are your reconciling items.
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Its not a "bank rec" its bookkeeping with incomplete records. That is to say you are doing the bookkeeping from scratch. however you do it, do it logically an work through line by line.
It will work and it will balance, it must always do so. What you dont know is a list of questions, and will form part of your balance.
Make it simple
all you need to do is enter bank statement for this year and you will have difference in opening balance of bank statement and your last year accounts. Identify the difference in opening balance and do not post items already posted in the last year.