Bank Reconciliation Statements Chapter 8 © Luby & O’Donoghue (2005)

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Presentation transcript:

Bank Reconciliation Statements Chapter 8 © Luby & O’Donoghue (2005)

Terminology Current account Cheque clearing Bank overdraft Direct debit Standing order Credit transfer Dishonoured cheque Bank statement

Comparison of records DR Cash Book CR Bank € 1 MarchBalance b/d2,500 1 MarchSales a/c 5,000 Date Transaction details DebitCreditBalance 1 March Balance Forward € March Lodgement € € Business Bank

The need for a bank reconciliation A bank statement will be received from the bank. The balance on the bank statement should be compared with the balance on the bank account in the ledger. The two balances are not likely to be the same: Timing differences Items on the statement not in the ledger accounts Errors A reconciliation is carried out to verify that the balances are correct.

Reasons for differences Items that are in the bank statement but are not in the cash book Automatic payments through the banking system Bank charges Dishonoured cheques Items that are recorded in the cash book but not appearing in the bank statement Un-presented cheques Un-cleared lodgements

Approach Step 1 Step 1 Each item in the bank statement needs to be traced to the cash book in order to identify all items that appear in the bank statement but are not in the cash book. All such items should then be entered in the cash book and a new updated balance calculated. Step 2 Step 2 Each item in the cash book should be traced to the bank statement so as to identify bank deposits and cheques drawn that are not appearing on the bank’s statement because the former are awaiting clearance and the latter are yet to be presented to the bank for payment. The bank reconciliation would look as follows.

Bank reconciliation statement

You are required to 1. 1.Update the cash book 2. 2.Prepare the bank reconciliation statement Example 1 Cash Book 1 AugBalance1,2005 AugCheque AugLodgement AugCheque AugLodgement AugCheque 2031, AugLodgement 271,50026 AugCheque AugLodgement 281,75029 AugCheque 2051, AugBalance c/d890 4, AugBalance b/d890 DateParticularsDebitCreditBalance 1 AugBalance 1,200 6 AugCheque AugLodgement AugCheque AugLodgement AugLodgement 27 1,5001, AugCheque 2031, AugCheque AugDirect Debit (Ins) AugBank Charges50 115

Preliminary work Compare and match each item on the bank statement with the cash book Cash Book 1 AugBalance1,2005 AugCheque AugLodgement AugCheque AugLodgement AugCheque 2031, AugLodgement 271,50026 AugCheque AugLodgement 281,75029 AugCheque 2051, AugBalance c/d890 4, AugBalance b/d890 DateParticularsDebitCreditBalance 1 AugBalance 1,200 6 AugCheque AugLodgement AugCheque AugLodgement AugLodgement 27 1,500 1, AugCheque 203 1, AugCheque AugDirect Debit (Ins) AugBank Charges50 115

Identify items on the bank statement omitted from the cash book and any errors made Cash Book 1 AugBalance1,2005 AugCheque AugLodgement AugCheque AugLodgement AugCheque 2031, AugLodgement 271,50026 AugCheque AugLodgement 281,75029 AugCheque 2051, AugBalance c/d890 4, AugBalance b/d890 DateParticularsDebitCreditBalance 1 AugBalance 1,200 6 AugCheque AugLodgement AugCheque AugLodgement AugLodgement 27 1,5001, AugCheque 2031, AugCheque AugDirect Debit (Ins) AugBank Charges50 115

Update the cash book Adjust the cash book additional items that appeared on the bank statement and for any errors found Cash Book 1 SeptBalance b/d8901 SeptDirect debit125 1 SeptBank charges50 1 SeptBalance c/d SeptBalance b/d715 This is part 1 of question answered

Carry out the bank reconciliation Identify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation Cash Book 1 AugBalance1,2005 AugCheque AugLodgement AugCheque AugLodgement AugCheque 2031, AugLodgement 271,50026 AugCheque AugLodgement 281,75029 AugCheque 2051, AugBalance c/d890 4, AugBalance b/d890 Bank Reconciliation Balance as per bank statement115 Add outstanding lodgements Lodgement number 281,750 Less un-presented cheques Cheque number 205(1,150) Balance as per cash book (corrected) 715 Part 2 of question answered

DateParticularsDebitCredit Balance 1-Jan Balance Cheque ,130 4-Jan1,120 4,010 5-JanCheque ,785 6-JanCheque , JanLodgement , JanCheque , JanLodgement , JanLodgement 106 3,2107, JanCheque 30522,100 5, JanCheque , Jan Direct Debit175 5,505 Bank Charges75 5,430 Example 2 You are required to 1. 1.Update the cash book 2. 2.Prepare the bank reconciliation statement

Opening balances disagree Preliminary work Compare and match each item on the bank statement with the cash book Cash Book 1-JanBalance3,5605-JanCheque JanLodgement JanCheque JanLodgement JanCheque 30522, JanLodgement 1063,11026-JanCheque JanLodgement JanCheque 30542, JanBalance c/d3,529 8, JanBalance b/d3,529 DateParticularsDebitCreditBalance 1-Jan Balance Cheque ,130 4-Jan1,120 4,010 5-JanCheque ,785 6-JanCheque , JanLodgement , JanCheque , JanLodgement , JanLodgement 106 3,2107, JanCheque ,100 5, JanCheque , Jan Direct Debit175 5,505 Bank Charges75 5,430

As the opening balances disagree, you need to identify items relating to last month and reconcile opening balances DateParticularsDebitCreditBalance 1-Jan Balance Cheque ,130 4-Jan1,120 4,010 5-JanCheque ,785 6-JanCheque , JanLodgement , JanCheque , JanLodgement , JanLodgement 106 3,2107, JanCheque 30522,100 5, JanCheque , Jan Direct Debit175 5,505 Bank Charges75 5,430 Opening reconciliation € Opening balance statement5,130 Add unpresented cheques (1, )1,570 Opening balance cash book3,560

Identify items on the bank statement omitted from the cash book and any errors made Cash Book 1-JanBalance3,5605-JanCheque JanLodgement JanCheque JanLodgement JanCheque 30522, JanLodgement 1063,11026-JanCheque JanLodgement JanCheque 30542, JanBalance c/d3,529 8, JanBalance b/d3,529 DateParticularsDebitCreditBalance 1-Jan Balance Cheque ,130 4-Jan1,120 4,010 5-JanCheque ,785 6-JanCheque , JanLodgement , JanCheque , JanLodgement , JanLodgement 106 3,210 7, JanCheque 30522,100 5, JanCheque , Jan Direct Debit175 5,505 Bank Charges75 5,430 Error €100 short in cash book

Update the cash book Adjust the cash book additional items that appeared on the bank statement and for any errors found Cash Book 31-JanBalance b/d3,52931-JanDirect Debit JanCorrection to 31-JanBank charges75 Lodgement JanBalance c/d3,379 3, JanBalance b/d3,379

Carry out the bank reconciliation Identify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation Cash Book 1-JanBalance3,5605-JanCheque JanLodgement JanCheque JanLodgement JanCheque 30522, JanLodgement 1063,11026-JanCheque JanLodgement JanCheque 30542, JanBalance c/d3,529 8, JanBalance b/d3,529 Bank Reconciliation Statement € Balance as per bank statement5,430 Add outstanding lodgements Lodgement Less un-presented cheques Cheque 3054(2,250) Balance as per cash book (corrected)3,379

Example 3 Cash Book 1 FebBalance b/d5003 FebCheque ,160 7 FebLodgement 7152,2303 FebCheque FebLodgement 7163,1003 FebCheque , FebLodgement 7171,87016 FebCheque FebLodgement 7182,15017 FebCheque , FebLodgement FebCheque , FebBalance c/d40023 FebCheque FebCheque ,900 1 MarBalance b/d400 Bank Statement DateDebitCreditBalance 1 FebOpening balance500 5 FebCheque ,380(2,880) 7 FebLodgement 7152,230(650) 8 FebBank interest13(637) 9 FebCheque (682) 14 FebLodgement 7163,1002, FebDD Telecom2252, FebCheque ,220(2,027) 22 FebLodgement 7171,770(257) 24 FebDishonoured cheque98(355) 25 FebCheque (645) 25 FebCheque ,680(2,325) 28 FebBank charges39(2,364) You are required to 1. 1.Update the cash book 2. 2.Prepare the bank reconciliation statement

Preliminary work Compare and match each item on the bank statement with the cash book Cash Book 1 FebBalance b/d5003 FebCheque ,160 7 FebLodgement 7152,2303 FebCheque FebLodgement 7163,1003 FebCheque , FebLodgement 7171,87016 FebCheque FebLodgement 7182,15017 FebCheque , FebLodgement FebCheque , FebBalance c/d40023 FebCheque FebCheque ,900 1 MarBalance b/d400 Bank Statement DateDebitCreditBalance 1 FebOpening balance500 5 FebCheque ,380(2,880) 7 FebLodgement 7152,230(650) 8 FebBank interest13(637) 9 FebCheque (682) 14 FebLodgement 7163,1002, FebDD Telecom2252, FebCheque ,220(2,027) 22 FebLodgement 7171,770(257) 24 FebDishonoured cheque98(355) 25 FebCheque (645) 25 FebCheque ,680(2,325) 28 FebBank charges39(2,364)

Identify items on the bank statement omitted from the cash book and any errors made Cash Book 1 FebBalance b/d5003 FebCheque ,160 7 FebLodgement 7152,2303 FebCheque FebLodgement 7163,1003 FebCheque , FebLodgement 7171,87016 FebCheque FebLodgement 7182,15017 FebCheque , FebLodgement FebCheque , FebBalance c/d40023 FebCheque FebCheque ,900 1 MarBalance b/d400 Bank Statement DateDebitCreditBalance 1 FebOpening balance500 5 FebCheque ,380(2,880) 7 FebLodgement 7152,230(650) 8 FebBank interest13(637) 9 FebCheque (682) 14 FebLodgement 7163,1002, FebDD Telecom2252, FebCheque ,220(2,027) 22 FebLodgement 7171,770(257) 24 FebDishonoured cheque98(355) 25 FebCheque (645) 25 FebCheque ,680(2,325) 28 FebBank charges39(2,364) Error €100 over Error €9 over Error €261 short

Update the cash book Adjust the cash book additional items that appeared on the bank statement and for any errors found Cash Book 1 MarError cheque MarBalance b/d400 1 MarBank interest131 MarError cheque MarBalance c/d1,1011 MarError lodge MarDD Telecom225 1 MarDishonoured cheque98 1 MarBank charges39 1,123 1 MarBalance b/d1,101

Carry out the bank reconciliation Identify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation Cash Book 1 FebBalance b/d5003 FebCheque ,160 7 FebLodgement 7152,2303 FebCheque FebLodgement 7163,1003 FebCheque , FebLodgement 7171,87016 FebCheque FebLodgement 7182,15017 FebCheque , FebLodgement FebCheque , FebBalance c/d40023 FebCheque FebCheque ,900 1 MarBalance b/d400 Bank Reconciliation Statement € Balance as per bank statement(2,364) Add outstanding lodgements Lodgement 718 2,150 Lodgement ,800 Less unpresented cheques Cheque ,160 Cheque Cheque (1,537) Balance as per cash book (corrected)(1,101)

Advantages of bank reconciliations It confirms the accuracy of the bank figure in the company’s records. It can help in identifying errors and fraud within the company. It can help identify errors made by the bank.

Other control aspects Dealing with cash Dealing with cheques Dealing with debit / credit cards