1. Bank reconciliation
Barbara Cooney

2. Learning Objectives
1. Explain the bank account per the business books (NL)
versus the bank statement received from the bank
2. Compare the bank account per the business books (NL)
versus the bank statement. Explain the differences?
3. Explain the functions of a bank reconciliation statement
4. Update cash book
5. Prepare a bank reconciliation statement

3. Methods of Receipts and Payments
Receipts Payments
Cheques receipt Cheques payment
Bank interest income Bank charges
Credit transfer (C/T) Interest charges
Standing order (S/O)
Direct debit (D/D)

4. Payments by a Bank
Standing Order is the  Direct debit is the instruction
instruction given by the given by the depositor to the
depositor to the bank to bank to pay the money with a
make regular payment with a variable amount directly from
fixed amount to a specific the depositor’s bank account
from time to time.
person automatically from
the depositor’s bank
 D=different
account.
S=Same

5. Bank account per your books
(Asset)
Dr Cr
Drying your eyes Crying your eyes
Money in / good thing Money out / bad thing
Receipt / Deposit Payment / Withdrawal
Increase in Asset Decrease in an asset

6. Bank a/c per your books –
Exercise: Dr or Cr side???
Insurance
Electricity
Paying a creditor (by cheque)
Money from a debtor (cheque)
Gas bill by DD
Telephone bill by SO
 Sale by cheque
Receipt of capital
Petty cash top-up
Bank charges
Lodgement into your bank a/c

7. Bank statement –
From the view of the bank
Dr Cr
Money out Money in
Withdrawal/payment Receipt / Deposit

8. Bank statement – an example

9. Purpose of Bank reconciliation -
comparing
1. What the bank say you have V What you think you have
2. Bank statement balance V What is on your books (NL)
3. Verifying the bank balance per your books is correct (for
audit purposes)

10. When there is a difference

11. Bank reconciliation
Compares / Reconciles / highlight differences
Bank statement balance
V
Bank account per your books (NL)

12. Reasons for differences

13. Reasons for Differences
Time differences in recording - Money lodged in bank but
not cleared or bank statement not updated by time sent out,
cheques not presented by creditor
Unknown transactions – bank charges, Dishonored cheque,
credit transfers, DD
Errors occurred on the Bank account of your books and/or the
Bank Statement e.g. entering on wrong side, incorrect amount

14. Unpresented Cheques
They have not been presented to the bank for money.

15. Steps to Creating bank reconciliation
Compare the bank Prepare bank
account per NLs to reconciliation
bank statement,
tick for common
Update items. Use
the bank Balance for items not on
the bank statement
Compare bank a/c per
NL. Start updated
statement to
with b/d bank a/c
bank a/c per
at the end per NL
NL => mark
common items of the old
with and bank a/c
mark items
with not on
bank a/c (NL) Think good or
bad surprise?

16. Updating bank a/c per books – remember
Bank account per your books
(Asset)
Dr Cr
Drying your eyes Crying your eyes
Money in / Good thing Money out / bad thing
Receipt / Deposit Payment / Withdrawal
Increase in Asset Decrease in an asset

17. Think good or
bad surprise?

18. Bank reconciliation statement
Balance (at end) as per bank statement x
Add lodgements not yet credited by the bank +
Less cheques not yet presented for payment -
Balance (at end) of adjusted bank account (book) x

20. Learning Objectives re-visited
1. Explain the bank account per the business books (NL)
versus the bank statement received from the bank
2. Compare the bank account per the business books (NL)
versus the bank statement. Explain the differences?
3. Explain the functions of a bank reconciliation statement
4. Update cash book
5. Prepare a bank reconciliation statement