2. Objectives
Understand the purpose of bank reconciliation
Understand why the bank account may not agree with the bank statement
Understand the stages of bank reconciliation
Upate the cash book
Prepare a bank reconciliation statement
Understand the advantages of bank reconciliation
3. Bank Statement
Is a document prepared and sent by the bank at regular intervals to its customers
It shows in detail all the transactions that have taken place during the period
covered by the statement
Is a copy of the customer´s account in the books of the bank
When money is paid into the bank the customer´s account will be credited as this is
the amount owed by the bank to the customer
When money is taken out of the bank, the customer´s account will be debited as
this reduces the amount owed by the bank to the customer
A positive bank balance will appear as a credit balance and an overdrawn balance
as a debit balance
4. Reconciliation
It is the comparison of the bank statement and the bank account in the cash book
If the two balances disagree, it is necessary to reconcile them to explain why the
differences have arisen
5. Reasons why the bank account and the
bank statement may differ
The different times at which the same ítems are recorded
The business not recording certain ítems in the cash book
6. Timing Differences
Cheques not yet presented
These are cheques that have been paid by the business and
entered on the credit of the cash book, but which do not appear
on the bank statement.
Amounts not yet credited
These are cash and cheques that have been paid into the bank
and entered on the debit side of the cash book, buth which do not
appear on the bank statement. It usually takes a few days before
the money paid into the bank is recorded in the customer´s account
7. Items not recorded in the cash book
It often happens that the business does not record certain ítems until the bank
Statement is received. These include:
Bank charges and bank interests
Dishonoured cheques
Amounts paid directly into the bank (credit transfers, standing orders and direct
debits)
Amounts paid directly by the bank to others (credit transfers, standing orders and
direct debits)
9. Differences between the bank account in the
cash book and the bank statement are
summarised as follows:
Items in Cash Book
not in Bank Statement
Items in Bank Statement
but not in Cash Book
Cheques not yet presented Bank charges and bank interests
Amounts not yet credited Dishonoured cheques
Errors in cash book Standing orders
Credit transfers
Direct Debits
Errors on bank statement
10. Stages in Bank Reconciliation
1. Compare the bank account in the cash book with the bank statement
2. Update the cash book
3. Correct any errors in the cash book
4. Balance the cash book and carry down the balances
5. Prepare a bank reconciliation statement.
11.
12.
13. Stages in Bank Reconciliation
1. Compare the bank account in the cash book with the bank statement
2. Update the cash book
3. Correct any errors in the cash book
4. Balance the cash book and carry down the balances
5. Prepare a bank reconciliation statement.
14.
15. Stages in Bank Reconciliation
1. Compare the bank account in the cash book with the bank statement
2. Update the cash book
3. Correct any errors in the cash book
4. Balance the cash book and carry down the balances
5. Prepare a bank reconciliation statement.
16. Stages in Bank Reconciliation
1. Compare the bank account in the cash book with the bank statement
2. Update the cash book
3. Correct any errors in the cash book
4. Balance the cash book and carry down the balances
5. Prepare a bank reconciliation statement.
17.
18.
19. This amount was CREDITED in the BANK STATEMENT
but it was not recorded in the CASH BOOK
20.
21. This amount was CREDITED in the BANK STATEMENT
but it was not recorded in the CASH BOOK
22. This amount was CREDITED in the CASH BOOK as $234
but it was DEBITED in the BANK STATEMENT as $243 ($9 difference)
23.
24. This amount was CREDITED in the CASH BOOK as $234
but it was DEBITED in the BANK STATEMENT as $243 ($9 difference)
25. This amount was DEBITED in the BANK STATEMENT
but it was not recorded in the CASH BOOK
26.
27. This amount was DEBITED in the BANK STATEMENT
but it was not recorded in the CASH BOOK
28. BALANCE THE CASH BOOK WITH A BALANCE C/D
AND BRING DOWN WITH A BALANCE B/D
29. BALANCE THE CASH BOOK WITH A BALANCE C/D
AND BRING DOWN WITH A BALANCE B/D