Bank Reconciliation Statement : Bank Reconciliation Statement The purpose of the bank reconciliation statement : The purpose of the bank reconciliation statement Due to the timing difference, omissions and errors made by the bank or the firm itself.
The balance of the bank statement and the bank account in the cash book rarely agree.
Bank reconciliation statements can be used
To explain the reasons for the differences and to identify errors and omissions in both documents, so that corrections can be made as soon as possible. Reasons for differences between the cash book balance and the bank statement balance : Reasons for differences between the cash book balance and the bank statement balance Uncredited items
They are deposits paid into the bank. These items occurred too close to the cut-off date of the bank statement and so do not appear on the statement. They will appear on the next statement. Banking made shown in the cash book
But not on the bank statement Slide 4: Unpresented cheques
They are cheques issued by the firm that have not yet been presented to its bank for payment.
They are standing instructions from the firm to the bank to make regular payments.
They are payments made directly through the bank.
They are charges made by the bank to the company for banking services used. Slide 5: Dishonoured cheques
They are cheques deposited but subsequently returned by the bank due to the failure of the drawer to pay.
Credit transfers / direct credits
They are money received from customers directly through the banking system.
Interest allowed by the bank
They are interest received for deposits or fixed deposits. Nature of the cash book and bank statement : Nature of the cash book and bank statement Cash Book (bank column only) Debit represents an increase Credit represents an decrease Drawing up a bank reconciliation statement : Drawing up a bank reconciliation statement To reconcile the Bank statement with the Corrected Cash Books
To reconcile the Bank statement with Unadjusted Cash Book To reconcile the bank statement with corrected cash book : To reconcile the bank statement with corrected cash book Three steps:
1. Check the bank statement and the cash book
to identify the items which have been
2. Update the cash book with any omissions and errors made by the firm itself.
e.g. Credit transfers (debit cash book)
Bank interest (debit cash book)
Standing orders / direct debits (credit cash book)
Bank charges (credit cash book)
Dishonoured cheques (credit cash book)
3. Prepare the bank reconciliation statement Example 1 : Example 1 Slide 11: Cash book(Bank column) $
Dec 1 Bal b/f 2800
3 W Lee 1000
10 T Cheung 2000
30 S Sin 1400 $
Dec 8 K Wong 1600
20 C Kwok 700
29 M Tang 100
31 Bal c/f 4800 7200 7200 Bank Statement Dr Cr Balance
Dec 1 Balance 2800
3 Cheque deposit 1000 3800
8 Cheque 76343 1600 2200
10 Cheque deposit 2000 4200
11 Dishonoured cheque 2000 2200
11 Service charges 30 2170
12 Autopay-rent 250 1920
20 Cheque 76344 700 1220
31 Bank interest 50 1270
31 Credit transfer-commission received 300 1570
31 Balance 1570 Uncredited
items Unpresented cheque Bank charges Direct debit Question: Slide 12: 31 Commission Rec. 300 31 Bank Interest 50 5,150 Dec 31 Balance b/f 4,800 Dec 31 T. Cheung –
Dishonoured cheque 2,000 31 Bank charges 30 31 Rent 250 31 Balance c/f 2870 5,150 Identify the items which have been omitted in the cash book Answer: Slide 13: Corrected balance in hand as per Cash Book Unpresented cheques 100 Bank deposits not yet entered on Bank Statement 1400 Balance in hand as per Bank Statement 2870 1570 Add Less 2970 Only adjusted caused by timing difference To reconcile the bank statement with the Unadjusted cash book : Two steps :
1. Check the bank statement and the cash book to identify the items which have been omitted.
2. Prepare the bank reconciliation statement. To reconcile the bank statement with the Unadjusted cash book Begin with the unadjusted cash book balance and end with the bank statement balance : Begin with the unadjusted cash book balance and end with the bank statement balance Amount received on bank statement
But not on bank statement Timing difference Bank error Example 2 : Example 2 The facts are the same as Example 1, but the cash book was not updated. Slide 17: Answer: Other Issues : Other Issues Post-dated cheque
It is a cheque which has not yet matured within the current accounting period.
The cheque should be held by the cashier and no entry should be made until the cheque becomes mature.
If a post-dated cheque has been entered in the cash book, make correcting entries. Slide 19: Stale cheque
It is a cheque which has been drawn for more than 6 months but has not yet gone through the bank of the drawee.
Accounting treatment: Slide 20: Errors made by the bank
Errors corrected within the current accounting period
Errors not corrected within the current accounting period Slide 21: Errors corrected within the current
-As the error has been corrected by the bank within
current accounting period, no adjustment is needed. Slide 22: Example 3 : No adjustment
should be made Slide 23: Errors not corrected within the current accounting period
Example 4 :
An amount of $1,000 which should be credited into the owner’s personal account was wrongly credited by the bank to the company’s bank account. The balance of the cash book is $4,000 and the balance of the bank statement was $5,000 at 31 Dec 1996 Slide 24: As it is an error made by the bank, no adjustment is needed in the
company’s cash book Answer: Slide 25: Different opening balances of the cash book and the bank statement
The following steps should be taken:
Reconcile the opening cash book balance with the opening bank statement balance.
The adjusting items for the opening balances should not appear in the bank reconciliation statement of the current period.
Prepare the bank reconciliation statement. Example 5 : Example 5 Slide 27: Cash book(Bank column) $
Dec 1 Bal b/f 10600
2 C Lee 2800
8 P Wong 1538
31 T Kong 1300 $
Dec 2 Bank charges( Nov) 500
28 K Tong-742 1000
29 C Au-743 1400
30 China Ltd-744 2100
31 Bal c/f 11238 7200 7200 Bank Statement Dr Cr Balance
Dec 1 Balance 11500
2 Credit 1000 12500
2 Credit 2800 15300
3 736 2400 12900
8 Credit 1538 14438
22 Standing order-rent 4000 10438
24 Service charges 200 10238
28 742 1000 9238
31 Balance 9238 Uncredited
item Unpresented cheque Question : Adjusting items for
opening balance Slide 28: The adjusting items for the opening balance should not appear in
the bank reconciliation statement as at 31 Dec 1996 Step 1 Unpresented cheque 2400 10,600 13,000 uncredited item 1,000 Bank charges 500 1,500 11,500 Balance in hand as per Bank Statement Answer Slide 29: Dec 31 Balance b/f 11,238 11,238 Dec 31 Rent 4,000 31 Service charges 200 31 Balance c/d 7038 11,238 Step 2 Slide 30: 7,038 Unpresented cheques ($1,400+$2,100) 3,500 10,538 Uncredited item 1,300 9,238 Step 3 Slide 31: Bank overdrafts
When there is a bank overdraft, the presentation of the bank reconciliation statement can be:
the same as those needed for a debit balance, but begins with a negative figure, or
the opposite of those needed for a debit balance. Example 6 : Example 6 Slide 33: Cash book(Bank column) $
Dec 1 Bal b/f 500
6 Cash 50
13 C Lee 200
31 R Wong 390
31 Bal c/d 150 $
Dec 8 A Tong 300
16 T Chan 500
28 Textile Ltd 490
Jan 1 Bal b/d 150 1290 1290 Bank Statement Dr Cr Balance
Dec 1 Balance 500
6 Cash 50 550
8 A Tong 300 250
13 C Lee 200 450
16 T Chan 500 50 O/D
29 United Trust-standing order 270 320 O/D 31 Bank charges 40 360 O/D
31 Balance 360 O/D Uncredited
item Unpresented cheque Question : Slide 34: Dec 31 Balance c/f 460 460 Dec 31 Balance b/f 150 31 United trust 270 31 Bank charges 40 460 Answer: Slide 35: Unpresented cheques 490 Uncredited item 390 (460) (360) 30