1. Bank Reconciliation Statement

2. 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.

3. Reasons for differences between the cash book balance and the bank statement balance
Unrecorded Deposits
These 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

4. Unpresented cheques Standing orders Direct debits Bank charges
These are cheques issued by the firm that have not yet been presented to its bank for payment.
Standing orders
These are standing instructions from the firm to the bank to make regular payments.
Direct debits
These are payments made directly through the bank.
Bank charges
They are charges made by the bank to the company for banking services used.

5. Credit transfers / direct credits
Dishonored cheques
These are cheques deposited but subsequently returned by the bank due to the failure of the drawer to pay.
Credit transfers / direct credits
This is money received from customers directly through the banking system.
Interest allowed by the bank
This is interest received for deposits or fixed deposits.

6. Nature of the cash book and bank statement
Cash Book (bank column only)
Debit represents an increase
Credit represents an decrease
Bank Statement Dr Cr
Balance
(represents
decrease)
increase)
the amount
owned to
the clients)

7. 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

8. 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
omitted.
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

9. Bank Reconciliation Statement as at XXXX
$ $
Corrected balance in hand as per Cash Book x
Add Unpresented cheques x
Wrong credits by the bank x x x
Less Bank deposits not yet entered on Bank Statement x
Wrong debits by the bank x x

10. Example 1

11. Cash book(Bank column)
Question:
Cash book(Bank column) $
Dec Bal b/f
3 W Lee
T Cheung
S Sin $
Dec K Wong
C Kwok
M Tang
Bal c/f
Unrecorded Deposits
Unpresented cheque
Bank Statement
Dr Cr Balance
$ $
Dec Balance
3 Cheque deposit
8 Cheque
10 Cheque deposit
11 Dishonoured cheque
11 Service charges
12 Autopay-rent
20 Cheque
31 Bank interest
31 Credit transfer-commission received
31 Balance
Bank charges
Direct debit

12. Cash Book (Bank Column)
Answer:
Cash Book (Bank Column) $
Dec 31 T. Cheung –
Dishonoured cheque 2,000
Dec 31 Balance b/f ,800
31 Commission Rec
31 Bank Interest
31 Bank charges
31 Rent
31 Balance c/f
5,150
5,150
Identify the items which have been omitted in the cash book

13. Bank Reconciliation Statement as at 31 Dec 1996$
Corrected balance in hand as per Cash Book
2870
Add
Unpresented cheques
2970
Less
Bank deposits not yet entered on Bank Statement
Balance in hand as per Bank Statement
1570
Only adjusted caused by timing difference

14. 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.

15. Example 2

16. Cash book(Bank column)
Question :
Cash book(Bank column) $
Dec Bal b/f
6 Cash
13 C Lee
R Wong
Bal c/d (-150) $
Dec A Tong
T Chan
Textile Ltd
1997
Jan Bal b/d
Unrecorded Deposits
Unpresented cheque
Bank Statement
Dr Cr Balance
$ $
Dec Balance
6 Cash
8 A Tong
13 C Lee
16 T Chan O/D
29 United Trust-standing order O/D Bank charges O/D
31 Balance O/D

17. Cash Book (Bank Column)
Answer:
Cash Book (Bank Column) $
Dec 31 Balance b/f
Dec 31 Balance c/f (-460)
31 United trust
31 Bank charges
460
460

18. Bank Reconciliation Statement as at 31 Dec 1996$
Corrected balance as per Cash Book (Overdraft)
Add
Less
Balance as per Bank Statement (overdraft)
(460)
Unpresented cheques 30
Uncredited item
(360)