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

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

3. 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 €2500.00 1 March Lodgement €5000.00€7500.00 Business Bank

4. 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.

5. 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

6. 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.

7. Bank reconciliation statement

8. 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 201525 10 AugLodgement 2515012 AugCheque 202750 22 AugLodgement 2622521 AugCheque 2031,250 25 AugLodgement 271,50026 AugCheque 204260 31 AugLodgement 281,75029 AugCheque 2051,150 31 AugBalance c/d890 4,825 31-AugBalance b/d890 DateParticularsDebitCreditBalance 1 AugBalance 1,200 6 AugCheque 201525 675 11 AugLodgement 25 150825 12 AugCheque 202750 75 23 AugLodgement 26 225300 26 AugLodgement 27 1,5001,800 25 AugCheque 2031,250 550 26 AugCheque 204260 290 31 AugDirect Debit (Ins)125 165 31 AugBank Charges50 115

9. Preliminary work Compare and match each item on the bank statement with the cash book Cash Book 1 AugBalance1,2005 AugCheque 201525 10 AugLodgement 2515012 AugCheque 202750 22 AugLodgement 2622521 AugCheque 2031,250 25 AugLodgement 271,50026 AugCheque 204260 31 AugLodgement 281,75029 AugCheque 2051,150 31 AugBalance c/d890 4,825 31-AugBalance b/d890 DateParticularsDebitCreditBalance 1 AugBalance 1,200 6 AugCheque 201 525 675 11 AugLodgement 25 150 825 12 AugCheque 202 750 75 23 AugLodgement 26 225 300 26 AugLodgement 27 1,500 1,800 25 AugCheque 203 1,250 550 26 AugCheque 204 260 290 31 AugDirect Debit (Ins)125 165 31 AugBank Charges50 115

10. Identify items on the bank statement omitted from the cash book and any errors made Cash Book 1 AugBalance1,2005 AugCheque 201525 10 AugLodgement 2515012 AugCheque 202750 22 AugLodgement 2622521 AugCheque 2031,250 25 AugLodgement 271,50026 AugCheque 204260 31 AugLodgement 281,75029 AugCheque 2051,150 31 AugBalance c/d890 4,825 31-AugBalance b/d890 DateParticularsDebitCreditBalance 1 AugBalance 1,200 6 AugCheque 201525 675 11 AugLodgement 25 150825 12 AugCheque 202750 75 23 AugLodgement 26 225300 26 AugLodgement 27 1,5001,800 25 AugCheque 2031,250 550 26 AugCheque 204260 290 31 AugDirect Debit (Ins)125 165 31 AugBank Charges50 115

11. 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/d715 890 1 SeptBalance b/d715 This is part 1 of question answered

12. 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 201525 10 AugLodgement 2515012 AugCheque 202750 22 AugLodgement 2622521 AugCheque 2031,250 25 AugLodgement 271,50026 AugCheque 204260 31 AugLodgement 281,75029 AugCheque 2051,150 31 AugBalance c/d890 4,825 31-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

13. DateParticularsDebitCredit Balance 1-Jan Balance Cheque 3048 5,130 4-Jan1,120 4,010 5-JanCheque 3050225 3,785 6-JanCheque 3049450 3,335 11-JanLodgement 104 8904,225 12-JanCheque 3051195 4,030 23-JanLodgement 105 7204,750 26-JanLodgement 106 3,2107,960 26-JanCheque 30522,100 5,860 28-JanCheque 3053180 5,680 31-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

14. Opening balances disagree Preliminary work Compare and match each item on the bank statement with the cash book Cash Book 1-JanBalance3,5605-JanCheque 3050225 10-JanLodgement 10489012-JanCheque 3051195 22-JanLodgement 10572021-JanCheque 30522,100 25-JanLodgement 1063,11026-JanCheque 3053180 31-JanLodgement 10719929-JanCheque 30542,250 31-JanBalance c/d3,529 8,479 31-JanBalance b/d3,529 DateParticularsDebitCreditBalance 1-Jan Balance Cheque 3048 5,130 4-Jan1,120 4,010 5-JanCheque 3050 225 3,785 6-JanCheque 3049450 3,335 11-JanLodgement 104 890 4,225 12-JanCheque 3051 195 4,030 23-JanLodgement 105 720 4,750 26-JanLodgement 106 3,2107,960 26-JanCheque 3052 2,100 5,860 28-JanCheque 3053 180 5,680 31-Jan Direct Debit175 5,505 Bank Charges75 5,430

15. As the opening balances disagree, you need to identify items relating to last month and reconcile opening balances DateParticularsDebitCreditBalance 1-Jan Balance Cheque 3048 5,130 4-Jan1,120 4,010 5-JanCheque 3050225 3,785 6-JanCheque 3049450 3,335 11-JanLodgement 104 8904,225 12-JanCheque 3051195 4,030 23-JanLodgement 105 7204,750 26-JanLodgement 106 3,2107,960 26-JanCheque 30522,100 5,860 28-JanCheque 3053180 5,680 31-Jan Direct Debit175 5,505 Bank Charges75 5,430 Opening reconciliation € Opening balance statement5,130 Add unpresented cheques (1,120 + 450)1,570 Opening balance cash book3,560

16. Identify items on the bank statement omitted from the cash book and any errors made Cash Book 1-JanBalance3,5605-JanCheque 3050225 10-JanLodgement 10489012-JanCheque 3051195 22-JanLodgement 10572021-JanCheque 30522,100 25-JanLodgement 1063,11026-JanCheque 3053180 31-JanLodgement 10719929-JanCheque 30542,250 31-JanBalance c/d3,529 8,479 31-JanBalance b/d3,529 DateParticularsDebitCreditBalance 1-Jan Balance Cheque 3048 5,130 4-Jan1,120 4,010 5-JanCheque 3050225 3,785 6-JanCheque 3049450 3,335 11-JanLodgement 104 8904,225 12-JanCheque 3051195 4,030 23-JanLodgement 105 7204,750 26-JanLodgement 106 3,210 7,960 26-JanCheque 30522,100 5,860 28-JanCheque 3053180 5,680 31-Jan Direct Debit175 5,505 Bank Charges75 5,430 Error €100 short in cash book

17. 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 Debit175 31-JanCorrection to 31-JanBank charges75 Lodgement 10610031-JanBalance c/d3,379 3,629 31-JanBalance b/d3,379

18. 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 3050225 10-JanLodgement 10489012-JanCheque 3051195 22-JanLodgement 10572021-JanCheque 30522,100 25-JanLodgement 1063,11026-JanCheque 3053180 31-JanLodgement 10719929-JanCheque 30542,250 31-JanBalance c/d3,529 8,479 31-JanBalance b/d3,529 Bank Reconciliation Statement € Balance as per bank statement5,430 Add outstanding lodgements Lodgement 107199 Less un-presented cheques Cheque 3054(2,250) Balance as per cash book (corrected)3,379

19. Example 3 Cash Book 1 FebBalance b/d5003 FebCheque 195601,160 7 FebLodgement 7152,2303 FebCheque 1956154 14 FebLodgement 7163,1003 FebCheque 195623,380 21 FebLodgement 7171,87016 FebCheque 1956329 28 FebLodgement 7182,15017 FebCheque 195644,220 28 FebLodgement 71965023 FebCheque 195651,680 28 FebBalance c/d40023 FebCheque 1956637 23 FebCheque 19567340 10,900 1 MarBalance b/d400 Bank Statement DateDebitCreditBalance 1 FebOpening balance500 5 FebCheque 195623,380(2,880) 7 FebLodgement 7152,230(650) 8 FebBank interest13(637) 9 FebCheque 1956145(682) 14 FebLodgement 7163,1002,418 19 FebDD Telecom2252,193 19 FebCheque 195644,220(2,027) 22 FebLodgement 7171,770(257) 24 FebDishonoured cheque98(355) 25 FebCheque 19563290(645) 25 FebCheque 195651,680(2,325) 28 FebBank charges39(2,364) You are required to 1. 1.Update the cash book 2. 2.Prepare the bank reconciliation statement

20. Preliminary work Compare and match each item on the bank statement with the cash book Cash Book 1 FebBalance b/d5003 FebCheque 195601,160 7 FebLodgement 7152,2303 FebCheque 1956154 14 FebLodgement 7163,1003 FebCheque 195623,380 21 FebLodgement 7171,87016 FebCheque 1956329 28 FebLodgement 7182,15017 FebCheque 195644,220 28 FebLodgement 71965023 FebCheque 195651,680 28 FebBalance c/d40023 FebCheque 1956637 23 FebCheque 19567340 10,900 1 MarBalance b/d400 Bank Statement DateDebitCreditBalance 1 FebOpening balance500 5 FebCheque 195623,380(2,880) 7 FebLodgement 7152,230(650) 8 FebBank interest13(637) 9 FebCheque 1956145(682) 14 FebLodgement 7163,1002,418 19 FebDD Telecom2252,193 19 FebCheque 195644,220(2,027) 22 FebLodgement 7171,770(257) 24 FebDishonoured cheque98(355) 25 FebCheque 19563290(645) 25 FebCheque 195651,680(2,325) 28 FebBank charges39(2,364)

21. Identify items on the bank statement omitted from the cash book and any errors made Cash Book 1 FebBalance b/d5003 FebCheque 195601,160 7 FebLodgement 7152,2303 FebCheque 1956154 14 FebLodgement 7163,1003 FebCheque 195623,380 21 FebLodgement 7171,87016 FebCheque 1956329 28 FebLodgement 7182,15017 FebCheque 195644,220 28 FebLodgement 71965023 FebCheque 195651,680 28 FebBalance c/d40023 FebCheque 1956637 23 FebCheque 19567340 10,900 1 MarBalance b/d400 Bank Statement DateDebitCreditBalance 1 FebOpening balance500 5 FebCheque 195623,380(2,880) 7 FebLodgement 7152,230(650) 8 FebBank interest13(637) 9 FebCheque 1956145(682) 14 FebLodgement 7163,1002,418 19 FebDD Telecom2252,193 19 FebCheque 195644,220(2,027) 22 FebLodgement 7171,770(257) 24 FebDishonoured cheque98(355) 25 FebCheque 19563290(645) 25 FebCheque 195651,680(2,325) 28 FebBank charges39(2,364) Error €100 over Error €9 over Error €261 short

22. 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 1956191 MarBalance b/d400 1 MarBank interest131 MarError cheque 19563261 1 MarBalance c/d1,1011 MarError lodge 717100 1 MarDD Telecom225 1 MarDishonoured cheque98 1 MarBank charges39 1,123 1 MarBalance b/d1,101

23. 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 195601,160 7 FebLodgement 7152,2303 FebCheque 1956154 14 FebLodgement 7163,1003 FebCheque 195623,380 21 FebLodgement 7171,87016 FebCheque 1956329 28 FebLodgement 7182,15017 FebCheque 195644,220 28 FebLodgement 71965023 FebCheque 195651,680 28 FebBalance c/d40023 FebCheque 1956637 23 FebCheque 19567340 10,900 1 MarBalance b/d400 Bank Reconciliation Statement € Balance as per bank statement(2,364) Add outstanding lodgements Lodgement 718 2,150 Lodgement 719 6502,800 Less unpresented cheques Cheque 195601,160 Cheque 1956537 Cheque 19566 340(1,537) Balance as per cash book (corrected)(1,101)

24. 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.

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