If a discrepancy arose from just one source it would be easy enough to deal with, but usually there are several discrepancies, some distorting the credit side and some distorting the debit side, and liable to cause confusion.

To remove this confusion, and explain the discrepancies, the cashier draws up a bank reconciliation statement. The cashier, after all, is responsible for the firm’s money, so if the bank statement disagrees with his cash book balance, he must clearly show the reason why.

There are three ways of reconciling the two accounts:

• 1.Reconcile cash book to bank statement: starting with the closing cash book balance, and check through step by step towards the bank balance, explaining the discrepancies as we go.
• 2.Reconcile the bank statement to the cash book: the opposite process (see figure 18).
• 3.Correct all the errors and omissions on both the cashier’s part and the bank’s part, showing how we did it, until we end up with the same balance from both viewpoints. (See figures 17 and 19.)

The third way is usually the best since it is easier to understand. We’ll see how to write up a bank reconciliation statement, step by step, on the following pages.

Suppose the same circumstances as in the worked example on page 24 were true except that the balance as per bank statement was £600 overdrawn and the balance as per Cash Book was £780 overdrawn. Figure 18 shows what the bank reconciliation would look like.