Bank Account Analysis Step By Step
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
What you need
- Cheque book stubs, paying-in book stubs, bank statements, and any advice slips from the bank explaining entries on the bank statements. The proprietor may have to obtain duplicates of lost bank statements, and his bank will charge for these. He may also have to obtain paid (cancelled) cheques from the bank, where the counterfoils of such cheques have not been filled in.
- Several sheets of wide analysis paper with plenty of columns (e.g. up to 20), including a boldly ruled cash column on each side.
Sort the source documents into date order. Fill in any uncompleted cheque stubs after obtaining the information from cleared cheques or the proprietor’s knowledge. Rule off the first bank statement at the date just before the start of the accounting period and do a bank reconciliation as at that date.
Step by step
- 1.Head an analysis sheet: ‘Bank account analysis for... [business name]... for period... [dates concerned]’.
- 2.Enter the opening balance from your reconciliation as at the last date of the previous accounting period—not the balance as per the bank statement. (Remember, if the balance is ‘in favour’ it will go on the left, and vice versa.)
- 3.Head the first column on the left ‘Dr.’ and the last column on the right ‘Cr.’.
- 4.List the values of each of the lodgements in the far left hand cash column (Dr.) and the values of each of the cheques in the far right hand column (Cr.). Do this for the whole period covered by the first bank statement. You can take them directly from the bank statements to save time. If most lodgements represent sales revenue you can annotate the exceptions on the bank statement and use it also as a source for analysis later.
- 5.Add and balance the two columns. Bring forward your balance, just as you would any ledger account.
- 6.Repeat the process for the period covered by the next bank statement, and so on to the end of the accounting period.
- 7.Prepare a bank reconciliation statement for the final date of the accounting period.
- 8.Extend your bank account analysis to show any extra details (leading to a different balance) shown in your bank reconciliation as at the end of the period (if, of course, the balance is different).
- 9.Now go back to your first analysis sheet and work your way through analysing each payment and each lodgement into an analysis column, as if it were a day book. The analysis columns for the payments will be credit columns, and those for lodgements will be debit columns: you are analysing the total credit entry to bank account that results from paying all the cheques involved. The double entry principle is not directly involved here; if it were, anlaysis of expenses would not be credit entries. The dividing line between the debit and credit columns will depend on how much of the categories apply to lodgements and payments respectively. Your list of headings, which refer to imaginary ledger accounts, will develop as you go along. You can’t decide them all in advance, since you won’t know the nature of each transaction until you get to it. You may well run out of analysis columns for payments. Keep one column aside as a ‘miscellaneous one’; then you can record any odd bits and pieces there, and analyse them separately on another sheet. To do this, set up a supplementary sheet with the headings you need. Transfer each item by analysing it in the appropriate columns on the supplementary sheet. When all the items have been dealt with enter on the original sheet, in brackets or in red ink, in the miscellaneous column, a figure equal to the column total, to complete the transfer. In the unlikely event that you need a misc column on the debit side too, just follow the same procedure.
- 10.Sum the analysis columns for each sheet.
- 11.Prepare a summary of analysis column totals for each sheet.
- 12.Total up the summary columns.
Finishing the job: drawing up final accounts
- 1.Prepare total debtors and creditors accounts.
- 2.Extract a trial balance.
- 3.Adjust for depreciation, bad and doubtful debts, accruals, prepayments, asset disposals and closing stock, obtaining details from the proprietor.
- 4.Draw up final accounts. Refer to appropriate chapters.