1. Assume the Position

2. ACT 1100 Introduction to Accounting
Summer Course
Lecturer: Troy J. Wishart

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4. Bank Reconciliation
Lecture Notes 8

5. Bank Reconciliation Introduction
Monies deposited in and paid out of the business’s bank account are usually recorded in the Bank Column of the cash Book.
The bank also keeps such a record of items deposited and paid from the account, which should obviously match with the business’ record.

6. Bank Reconciliation
Introduction
However, there might be items paid into and out of our account at the bank which we have not recorded in the cash book.

7. Bank Reconciliation
Introduction
To see what these are we need a copy of our account kept at the bank which is called a “Bank Statement”.
Bank Statement – a monthly statement of account mailed by a bank to each of its customers with checking or other accounts, recording the banking transactions and current balance during a period and usually including canceled checks.

8. Bank Reconciliation
Introduction
There may also be items that are recorded in the cash book, but not showing up on the bank account.

9. Bank Reconciliation
Introduction
As such, a Bank Reconciliation Statement should be prepared in order determine why there is a difference.

10. Bank Reconciliation
Definition
A calculation comparing the cash book with the bank balance.
Made up of two (2) words “Bank” & “Reconciliation”

11. Bank Reconciliation
Definition
Bank – Closing balances on
Bank Column of the Cash Book
Bank Statement balance of the business’ bank account

12. Bank Reconciliation Definition
Reconciliation - is a process that comes from the root “To Reconcile”, which means:
To Make agree
To explain disagreement in order to make agree

13. Bank Reconciliation Definition
Reconciliation - is a process that comes from the root “To Reconcile”, which means:
To bring into agreement or harmony;
Make compatible or consistent:
To reconcile differing statements;
To reconcile accounts.

14. Bank Reconciliation
Definition
It should show whether or not errors have been made either in the bank columns of the cash book or on the bank statement.

15. Bank Reconciliation Definition
It is not a statement of double entry but just one explaining the difference between the bank balance and the cash book bank column.

16. Bank Reconciliation Why do we need it?
The bank reconciliation statement is drawn up so as to cause the bank statement balance to agree with the cash book bank balance.

17. Bank Reconciliation
Why do we need it?
To determine the items responsible for the difference and to correct the cash book bank balance, since the bank balance is needed for the balance sheet.

18. Reasons for Differences Timing difference
Bank Reconciliation
Reasons for Differences
Reasons for difference between the two sources of information are broadly categorized as:
Timing difference
Informational Difference
Errors

19. Bank Reconciliation Reasons for Differences
Specific factors responsible for cash book balance and balance as shown by the bank statement being different:-
Deposits in transit
Unpresented cheques
Bank charges
Bank credits
Bank or depositor’s errors

20. Bank Reconciliation Deposits in Transit
Cash deposits made at the end of the month into the business’ bank in one month but received and recorded by the bank in the following month.

21. Bank Reconciliation
Deposits in Transit
Deposits in transit at the end of one months would be included in the next month bank statement
Therefore it must be deducted from the deposits for the month as per bank statement
To ascertain those deposits received during the month for that month.

22. Bank Reconciliation Unpresented Cheques
These are cheques which have been paid and dispatched to individuals or business, but which have not been presented for payment at the payer’s bank.

23. Bank Reconciliation Unpresented Cheques
In effect these are items that are entered on the credit side of the cash book and had not yet been entered in the bank’s records.

24. Bank Reconciliation
Unpresented Cheques
Unpresented cheques at the end of one month may be presented during the next month.

25. Bank Reconciliation
Unpresented Cheques
Those presented outstanding cheques from the previous period must be deducted from the cheques received during the month to derive those cheques paid and encashed at the bank during the month under consideration.

26. Bank Reconciliation
Bank Charges
These are charges which have been dispatched to the depositor’s balance for such items as:
Bank Services,
Printing Cheques,
Safe Deposit Rentals
and Not Sufficient Funds (NSF) Cheques.
The depositor may not be aware of these charges until the receipt of the bank statement.

27. Bank Reconciliation
Bank Credits
Collection or deposits by the bank for the benefit of the account holder that may not be known to them until the bank statement is received.

28. Bank Reconciliation
Bank or Depositors Errors
Errors on either the part of the bank or the part of the depositor causing the bank balance to disagree with the depositor’s book balance.

29. Bank Reconciliation
Standing Order
A standing order is a request by a customer for the bank to make payments to third parties on a periodic basis.

30. Bank Reconciliation
Standing Order
The customer records the transaction in his books on receipt of his bank statement, as he is unaware as to when or if the bank had made the payment on his behalf.

31. The Bank Reconciliation MODEL

32. BANK RECONCILIATION STATEMENT FOR MONTH, YEAR
Model
NAME
BANK RECONCILIATION STATEMENT FOR MONTH, YEAR
BALANCE AS PER CASH BOOK
Add:
Note Collectible,
Direct Deposit Bank Credit
Interest on Note
Interest Earned
Cash Book Error: Understated Deposit 00
Cash Book Error: Overstated Cheque
Cash Book Error: Omitted Deposit
000
Less:
“Deductions”
BALANCE AS PER Bank Statement
Deposits in transit
Bank Error: Understated Deposit
Bank Error: Overstated Cheque
Bank Error: Incorrect Deductions
Bank Error: Omitted Deposit

33. BANK RECONCILIATION STATEMENT FOR MONTH, YEAR
Model
NAME
BANK RECONCILIATION STATEMENT FOR MONTH, YEAR
BALANCE AS PER CASH BOOK
Add:
“Additions”
Less:
Bank Charges
Standing Order
Interest Paid
Dishonoured Cheques
Cash Book Error: Overstated Deposit 00
Cash Book Error: Understated Cheque 00
Cash Book Error: Omitted Cheque
(000)
Corrected Cash Book Balance
BALANCE AS PER Bank Statement
Unpresented Cheques
Bank Error: Overstated Deposit
Bank Error: Understated Cheque
Bank Error: Incorrect Increases
Bank Error: Omitted Cheque
Corrected Bank Statement Balance

34. Bank Reconciliation Dishonoured Cheques
When a cheque is received from a customer and paid into the bank, it is recorded:
Debit Side of the Cash Book Bank Column
Credit Side of the Bank Statement.

35. Bank Reconciliation Dishonoured Cheques
If at a later date the customers bank refuses to pay us the amount due on the cheque – This is known as a Dishonoured Cheque.

36. Bank Reconciliation
Dishonoured Cheques
There are several reasons for this as shown in this example –
Let us suppose that K. King gave us a cheque for $5,000 on May 20, We bank it and a few days later the bank returns the cheque to us.
Figures and Words Don’t Match – “If King had put $5,000 in figures, but had written in words five thousand five hundred dollars on the cheque”
This cheque would not be honoured by the bank and would have to be returned to King for amendment.

37. Bank Reconciliation Dishonoured Cheques
There are several reasons for this as shown in this example –
Let us suppose that K. King gave us a cheque for $5,000 on May 20, We bank it and a few days later the bank returns the cheque to us.
Stale Dated Cheques – Cheques are considered stale dated after six (6) months after the date on the cheque. The bank will not pay cheques 6 months old.
“If King had put 2001 on the cheque instead of 2002 then the cheque would be returned by the bank.”

38. Bank Reconciliation
Dishonoured Cheques
There are several reasons for this as shown in this example –
Let us suppose that K. King gave us a cheque for $5,000 on May 20, We bank it and a few days later the bank returns the cheque to us.
Not Sufficient Funds Cheques – “If King only had a balance of $2,000 in his account the bank will not honour the cheque of $5,000 because it will result in a overdraft on his account.”
The bank will write on the cheque “refer to drawer” and return in to us as a dishonoured cheque.

39. Bank Reconciliation Dishonoured Cheques Accounting Entries K. King
2002
K. King
May 1
Balance b/d
5,000
May 20
Bank
5,000
May 25
Bank: Dis Chq
5,000
2002
Bank Account
May 20
K King
5,000
May 25
Bank: Dis Chq
5,000

40. Bank Reconciliation Bank Overdraft
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero.
In this situation the account is said to be "overdrawn".
It is shown by a credit balance in the cash book or a debit balance on the bank statement.
The adjustment needed to reconcile the bank overdraft is the complete opposite of an account that is not overdrawn.

41. Bank Reconciliation Bank Overdraft – Comparison Balances Overdraft $ $
Balance/Overdraft as per cash book
Adjustments
Unpresented Cheques Plus Less
Bank lodgments Less Plus
Balance/Overdraft per Bank Statement