Bank Reconciliation Statement Principles of Account Bank Reconciliation Statement By Nancy Keong

Content - - The definition of the bank reconciliation statement. The purpose of the bank reconciliation statement. - The definition of the bank reconciliation statement. - Reasons for difference between the cash book and the bank statement. - Nature of the cash book and the bank statement. - Drawing up a bank reconciliation statement. - Example - Exercise

THE PURPOSE OF THE BANK RECONCILIATION STATEMENT Due to the timing difference,omissions and errors made by the bank or the firm itself,the balances 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. Back to the content

THE DEFINITION OF THE BANK RECONCILIATION STATEMENT The bank balances as shown in the cash book and the bank statement seldom agree.There are various reasons for this.A statement is used to reconcile the two balances. Back to the content

3. REASONS FOR DIFFERENCES BETWEEN THE CASH BOOK AND THE BANK STATEMENT. 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.

Reasons Unpresented cheques Standing orders Back They are cheques issued by the firm that have not yet been presented to its bank for payment. Standing orders They are standing instructions from the firm to the bank to make regular payments. Back

Reasons Direct debits Bank charges Back They are payments made directly through the bank. Bank charges They are charges made by the bank to the company for banking services used. Back

Reasons Dishonoured cheques Credit transfers/direct credits Back 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 collections from customers directly through the bank. Back

Reasons Interest allowed by the bank Back to the content They are interest received for deposits or fixed deposits. Back to the content

4. NATURE OF THE CASH BOOK AND THE BANK STATEMENT. The balance in the cash book is an asset to the company,therefore: Cash book (A credit represents a decrease) (A debit represents an increase) Next

The balance as per the bank statement is a liability to the bank,therefore: Dr. Cr. Balance (represents decreases) (represents increases) (represents the amount owed to the clients) Back to the content

1st step 2nd step final step 5. DRAWING UP A BANK RECONCILIATION STATEMENT To reconcile the bank statement with the corrected cash book Check the bank statement and the cash book to see the items which have been omitted. Prepare the bank reconciliation statement. Update the cash book with any omissions and errors made by the itself. 1st step 2nd step final step Back to the content

Example A company’s cash book and bank statement for December 1996 appear as follows: Cash Book(bank column) $ Dec 1 Balance b/d 2800 3 W.Lee 1000 10 T.Cheung 2000 30 S.Sin 1400 7200 $ Dec 8 K.Wong 1600 20 C.Kwok 700 29 M.Tang 100 31 Balance c/d 4800 7200

Bank Statement Dr Cr Balance Back $ $ $ Dec 1 Balance 2800 $ $ $ 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 charge 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 Back

Answer (1st step) Back Cash Book(bank column) $ Dec 1 Balance b/d 2800 3 W.Lee * 1000 10 T.Cheung * 2000 30 S.Sin 1400 7200 $ Dec 8 K.Wong * 1600 20 C.Kwok * 700 29 M.Tang 100 31 Balance c/d 4800 7200 Unpresented cheque Uncredited item Back “*” are those appear both in the cash book and the bank statement.

Bank Statement Back Dr Cr Balance $ $ $ Dec 1 Balance 2800 $ $ $ 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 charge 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 Bank charge Back Direct debit

(2nd step) The corrected cash book and the bank reconciliation as at 31 December 1996 would appear as follows: Cash Book(bank column) $ Dec 31 T.Cheung— Dishonoured cheque 2000 31 Bank chrges 30 31 Rent 250 31 Balance c/d 2870 5150 $ Dec 31 Balance b/d 4800 31 Commission Received 300 31 Bank interest 50 5150 Back

(final step) Back to the content Bank Reconciliation Statement as at 31 December 1996 $ Corrected balance in hand as per cash book 2870 Add Unpresented cheque 100 2970 Less Bank deposit not yet entered on bank statement 1400 Balance in hand as per Bank Statement 1570 Back to the content

Exercise The following are extracts from the cash book and the bank statement 2000,and you are required to: Write the cash book up to date,and the new balance as on 31 December 2000,and Draw up a bank reconciliation as on 31 December 2000.

Cash Book Back $ Dec 1 Balance b/d 1740 7 T Ma 88 22 J Li 73 31 K Woo 249 31 M Poon 178 2328 $ Dec 8 A Dai 349 15 R Sun 33 28 G So 115 31 Balance c/d 1831 2328 Back

GO Bank Statement Back Dr Cr Balance $ $ $ Dec 1 Balance b/f 1740 $ $ $ Dec 1 Balance b/f 1740 7 Cheque 88 1828 11 A Dai 349 1479 20 R Sun 33 1446 22 Cheque 73 1519 31 Credit transfer:J Wong 54 1573 31 Bank charges 22 1551 GO Back

Answer Cash Book Back $ Dec 31 Balance b/d 1831 31 J.Wong 54 1885 $ Dec 31 Bank charges 22 31 Balance c/d 1863 1885 Back

Back Bank Reconciliation Statement as on 31 December 2000 $ Balance per cash book 1863 Add Unpresented cheque 115 1978 Less Bankings not yet on bank statement (249+178) 427 Balance per bank statement 1551 Back

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