Explain:

(a) The type of transactions that would increase the bank balance.
(b) The type of transactions that would decrease the bank balance.

The amounts withdrawn from the bank account by cheque should appear as identical amounts on the credit bank columns of the cash book and the debit columns of the bank statement.

Amounts paid in should appear as identical amounts in the debit bank columns of the cash book and the credit columns of the bank statement.

We have already listed reasons why the cash book kept by a business and the record kept by the bank may be different. If we correct the differences all should be well.

Why is there a need to prepare a bank reconciliation statement

We need to check that:
■ All transactions using banking facilities have been recorded
■ All transactions have been recorded accurately by both the business and the bank
■ All transactions have gone through the bank account kept at the bank.