BANK RECONCILIATION LECTURE NOTES BY MR. S. NDHLOVU The receipts and payments we make in our cash book are also recoded by the bank in there books. The cash book contains the cash account and the a bank Account. The balance on the bank account must be exactly equal to the amount the bank will show on the bank statement sent to us at the end of the month.

BANK RECONCILIATION CONT’D If the two balances are not the same then investigations should be instituted to establish the causes of the difference. The cash book is thereafter updated with entries that are on the bank statement but not in the cash book, and a bank reconciliation statement is compiled for the entries that are in the cash book but are not on the bank statement

BANK RECONCILIATION CONT’D Therefore,Bank Reconciliation is comparison of what we have in the cash book against what is on the bank statement Cash book balance may differ with bank statement balance for the following reasons: Payments and deductions made by the bank such as standing order, bank charges and interest or bank overdraft appearing on the bank statement, but not yet entered in the cash book

BANK RECONCILIATION CONT’D Amounts received by the bank on behalf of the business and have not yet been entered in the cash book, e.g direct deposit(credit transfers). cheques issued but not yet presented for payments Cheques deposited but not yet credited at the bank

BANK RECONCILIATION CONT’D A cheque being dishonoured (Refer to the Drawer(RD)i.e. the bank has refused to process the payment of the cheque. When the error has been made e.g. when entering the figures by the business or the bank * Note that a customer(Business)/account holder at the bank is a creditor, hence whenever money is deposited in the business account, a credit entry is made at the bank and whenever money is withdraw a debit entry is made

BANK RECONCILIATION CONT’D Therefore, when the cash book balance does not match with the bank statement balance, there is always a need to carry out a reconciliation and this will involve: Preparing the Revised or Updated Cash book Start with the balance b/d in the cash account Record payments or receipts appearing on the bank statement but not on the cash book

BANK RECONCILIATION CONT’D On preparing the Bank Reconciliation Statement start with the revised cash book balance Add unpresented cheques Deduct uncredited cheques EXAMPLE.