What you need

• the cash book
• the bank statements for the period (week, month, quarter).

Remember, a page of figures can be bewildering to your reader, who may not understand book-keeping as well as you, or have the time or patience to make sense of muddled words and figures. Simplicity and clarity should be your goal. Head all your cash columns £ and p to avoid having to write these symbols against every single entry. Likewise, when writing dates record the month once only, followed by the individual days. Put a clear heading against the left of each line of your figures. You will probably need two cash columns, one for sub-totalling particular types of transactions. For example, if there are three unpresented cheques you would add their values in a left hand column, and place the subtotal in a main right hand column.

Bank reconciliation step by step

• 1.Compare the balances of the bank statement and the cash book as at the end of the accounting period you are checking. If they disagree then a bank reconciliation will be needed. Proceed as follows.
• 2.Check off each payment listed in the cash book against the bank statement. Tick each one in pencil in the cash book, and on the bank statement, as you go. As you will see, items on the credit side of your cash book appear on the debit side of the bank statement, and vice versa. This is because the same account is seen from two opposite viewpoints: the cash book from the firm’s, the bank statement from the bank’s.
• 3.Can you see on the statement any standing orders (STOs), direct debits (DDRs) or bank charges? These items may not have been recorded in your cash book as yet. Also, are there any returned (’bounced’) cheques? If there are, they will appear as consecutive entries, identical but appearing on opposite sides (Dr and Cr) and will be annotated ‘¢’.
• 4.Take a sheet of A4 paper and begin by writing: ‘balance as per bank statement.’ State whether it is ‘in favour’ or ‘overdrawn’ (see example opposite). It is important to use a term such as ‘in favour’ rather than ‘in credit’, since ‘in credit’ is ambiguous here: an ‘in credit’ bank balance means you are ‘in the black’; but an ‘in credit’ balance in the cash book means you are ‘in the red’. The terms in favour and overdrawn overcome this ambiguity, since they mean the same from both viewpoints, the firm’s and the bank’s.

• 5.Record the ‘balance as per bank statement’, with the amount. Then list all the errors and omissions on the bank’s part, in groups, for example listing unpresented cheques first, and then any unshown lodgements. Write your additions and deductions as you go to show what difference they would have made to the bank statement if such errors or omissions had not occurred.
• 6.When you have listed all the errors and omissions, write against your final figure: ‘corrected bank statement balance’.
• 7.Now do the same for the cashier. Begin by writing: ‘balance as per cash book.’ Then list all the errors and omissions on the cashier’s part. They won’t of course be the same ones. For example the bank won’t have recorded unpresented cheques, but the cashier will. When your two corrected totals are the same, the job of reconciliation is done. There is more about bank reconciliations on page 164.

You have now crossed from single entry book-keeping into double entry accounting, since the cash book bridges a gap between these two, being both a book of prime entry, and part of the double entry system.

In most accounts offices the keeping of the cash book is a specialised job. It is the task of the cashier, a position of considerable responsibility and attracting a higher salary than that of a day book clerk. For those of you already working in accounts offices, mastering this section could soon gain you promotion and pay rises.