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

2. 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

3. 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.
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4. 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.
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5. 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.

6. 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

7. 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

8. 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

9. Reasons Interest allowed by the bank Back to the content
They are interest received for deposits or fixed deposits.
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10. 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

11. 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)
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12. 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
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13. Example
A company’s cash book and bank statement for December 1996 appear as follows:
Cash Book(bank column) $
Dec 1 Balance b/d
3 W.Lee
10 T.Cheung
30 S.Sin
7200 $
Dec 8 K.Wong
20 C.Kwok
29 M.Tang
31 Balance c/d
7200

14. Bank Statement Dr Cr Balance Back $ $ $ Dec 1 Balance 2800
$ $ $
Dec 1 Balance
3 Cheque deposit
8 Cheque
10 Cheque deposit
11 Dishonoured cheque
11 Service charge
12 Autopay—Rent
20 Cheque
31 Bank interest
31 Credit transfer ---Commission received
31 Balance
Back

15. 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
7200 $
Dec 8 K.Wong *
20 C.Kwok *
29 M.Tang
31 Balance c/d
7200
Unpresented cheque
Uncredited item
Back
“*” are those appear both in the cash book and the bank statement.

16. Bank Statement Back Dr Cr Balance $ $ $ Dec 1 Balance 2800
$ $ $
Dec 1 Balance
3 Cheque deposit *
8 Cheque *
10 Cheque deposit *
11 Dishonoured cheque
11 Service charge
12 Autopay—Rent
20 Cheque *
31 Bank interest
31 Credit transfer ---Commission received
31 Balance
Bank charge
Back
Direct debit

17. (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
31 Bank chrges
31 Rent
31 Balance c/d
5150 $
Dec 31 Balance b/d
31 Commission
Received
31 Bank interest 50
5150
Back

18. (final step) Back to the content
Bank Reconciliation Statement as at 31 December 1996 $
Corrected balance in hand as per cash book
Add Unpresented cheque
2970
Less Bank deposit not yet entered on bank statement
Balance in hand as per Bank Statement
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19. 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.

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

21. GO Bank Statement Back Dr Cr Balance $ $ $ Dec 1 Balance b/f 1740
$ $ $
Dec 1 Balance b/f
7 Cheque
11 A Dai
20 R Sun
22 Cheque
31 Credit transfer:J Wong
31 Bank charges GO
Back

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

23. Back Bank Reconciliation Statement as on 31 December 2000 $
Balance per cash book
Add Unpresented cheque
1978
Less Bankings not yet on bank statement
( )
Balance per bank statement
Back

24. The end
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