1. Unit 1 - Introduction to Financial Accounting Bank Reconciliation Statements Mr. BarryA-level Accounting Year 12

2. Learning objectives: To understand the nature & the importance of the Bank Reconciliation Statement To understand why the cash book & the bank statement may differ To be able to prepare a bank reconciliation statement To be prepared for unusual items that may appear on bank statements Mr. BarryA-level Accounting Year 12

3. What is a Bank Reconciliation Statement (BRS)? It forms the link between the balance at bank shown by in the business’ cash book & the balance shown on the bank statement that the business received once a month The balances are often different to each other, for good reasons; but the business must “reconcile” the two balances – this means that they need to be agreed by completing a BRS Mr. BarryA-level Accounting Year 12

4. Bank Account (Cash Book) Vs Bank Statement Bank Statement – Bank’s record Bank Account (Cash Book) – Own record (business) The Bank Statement and business Bank Account should be a mirror image of each other. Principle of Duality applies i.e. every debit has a corresponding credit. Mr. Barry

5. Bank Reconciliations Cash book must be balanced off at the end of each accounting period (cash account/bank account) This needs to be compared with the balance on the bank statement The balances will usually be found to be different Hence the need for a bank reconciliation statement A-level Accounting Year 12 Mr. Barry

6. An example of a bank reconciliation explain what’s happening here… Mr. BarryA-level Accounting Year 12 Note how Dr entries move to Cr and vice versa

7. An example of a bank reconciliation By comparing the bank account and the bank statement, the only item not on both was the cheque no. 935 £40 This was entered in the bank account but not presented on the bank statement Reason for difference is one of timing and such a cheque is known as an “unpresented” or “outstanding” cheque A-level Accounting Year 12 Mr. Barry

8. Bank Reconciliation Statement A-level Accounting Year 12 Note the format as you will be asked to do up another one shortly! Mr. Barry

9. Example 2…write down your own notes on what you see happening here… ** Mr. BarryA-level Accounting Year 12

10. Steps: 1.Use end of month Balance as your starting point 2.Update the bank account for the items on the bank statement not in bank account (for example bank charges, credit transfers) 3.Get new balance Challenge: Write down these steps and try them on the previous Bank A/C 1.Prepare a bank reconciliation A-level Accounting Year 12 Mr. Barry

11. Update the Bank ACCOUNT A-level Accounting Year 12 Where did these entries come from? Attempt a Bank Reconciliation Statement. Mr. Barry

12. Bank Reconciliation Statement A-level Accounting Year 12 Mr. Barry

13. Reasons why different balances, assuming no other errors: Unpresented cheques – amounts of written out cheques, but has yet to go through bank’s clearing system Outstanding lodgements – amounts that have been paid into the bank account, but are not yet showing up Items that are set up to automatically come out of bank account may not have been noted in cash book – receipts & payments Mr. BarryA-level Accounting Year 12

14. Unusual items on bank statements Out of date cheques Returned cheques Bank errors Bank charges Bank interest Mr. BarryA-level Accounting Year 12

15. Importance of BRS Errors identified Assists in deterring fraud Gives correct figure for trial balance Unpresented cheques can be identified It is good practice Mr. BarryA-level Accounting Year 12

16. The Layout £ Balance as per cash bookx Add: unpresented chequesx Less: Uncredited lodgements (x) Balance as per bank statementx Mr. BarryA-level Accounting Year 12

17. Steps in completing an exam question 1)Starting from the bank account tick off all items on the debit side against the credit items on the bank statement. 2)Then tick off the items on the credit side of the bank account against the debit items on the bank statement. 3)What remains are a number of items unticked on both the bank account and bank statement Mr. BarryA-level Accounting Year 12

18. 4)Update the Bank Account for items unticked on bank statement. All debit items unticked on bank statement posted to credit side of Bank Account and credit items unticked on bank statement posted to the debit side of the Bank Account. 5)The Account is now up to date and there will be a new Bank Account balance. Mr. BarryA-level Accounting Year 12

19. 6)The Bank Reconciliation can now be completed 7)Starting with the closing balance on the bank statement 8)Add the outstanding lodgements i.e. the items unticked on the debit side of the Cash Book Why do you add these? Mr. BarryA-level Accounting Year 12

20. 9)From this figure subtract the outstanding cheques i.e. the items unticked on the credit side of the Cash Book. 10)The resulting figure should equal the new closing balance on the Cash Book Mr. BarryA-level Accounting Year 12