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Bank Reconcilliatons

This document discusses bank reconciliation statements. It explains what a bank reconciliation statement is and why it is needed when differences exist between a company's cash book and bank statement records. It provides details on common reasons for differences such as unpresented cheques and late lodgements. The document also outlines the process for reconciling the cash book and bank statement and presents the format of a bank reconciliation statement.

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Beanka Paul
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84 views24 pages

Bank Reconcilliatons

This document discusses bank reconciliation statements. It explains what a bank reconciliation statement is and why it is needed when differences exist between a company's cash book and bank statement records. It provides details on common reasons for differences such as unpresented cheques and late lodgements. The document also outlines the process for reconciling the cash book and bank statement and presents the format of a bank reconciliation statement.

Uploaded by

Beanka Paul
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Control Accounts

Bank Reconciliation Statement


Bank Reconciliation Statement
In our cash book we will record in the bank
columns money paid out and received by using
cheque to undertake various transactions for the
company. Our personal bank will also record items
paid into and out of the account we have with them.

Both the bank and business should have identical


records of these transactions since both records
would refer to the same transactions.
Bank Reconciliation Statement
The bank will ensure that regular updates are sent to the
business concerning its related transactions via
something called a bank statement.

Once the bank statement is obtained by the business,


the accountant will check the cash book bank entries
against the entries in the bank statement to ensure that
they correspond.
Bank Reconciliation Statement
Due to the fact that we have no control over our bank’s
own records, there may be differences between the
bank statements and the company’s cash book and
errors have to be found and corrected using a bank
reconciliation statement.
Bank reconciliation statement is a statement that the
accountant prepare to find, explain and understand any
differences between the balance in the bank statement
and the balance in their accounting records.
Differences found may be due to:

◦Genuine recording errors


◦Fraud
◦The difference in time (in most cases, this is
the reason)
Reasons for a time difference
Items which may cause a time difference in making
entries to the cash book and the bank’s records
◦ Unpresented Cheques - These are cheques paid out and
recorded by the business but have not been received by the
bank for payment. It will therefore be found on the payment
side of the cashbook but not on the bank statement.

◦ Late Lodgements - These are cheques received and recorded in


the cashbook by the business which have not been lodged, or
were lodged late to the bank, hence these were not entered on
the bank statement. Late Lodgements will be found on the
receipts side of the cashbook but not on the bank statement.
Reasons for a time difference
◦ Standing Orders - A business may instruct its bank to
make regular payments to stated entities on its behalf.
These would have been entered on the bank’s records
first and would therefore be found on the payment
side of the bank statement but not in the cash book of
the business.
◦ Direct Debits - These represent payments where the
creditor is given permission to withdraw the payments
directly from business bank account. These would
first be recorded by the bank. Direct Debits are found
on the payment side of the bank statement but not in
the cash book.
Reasons for a time difference
◦ Bank Charges - These represent payments of the business
for some services provided by the bank for example
banking fees such as withdrawn fees or overdraft fees.
These payments would automatically be withdrawn from
the business account by the bank so would first be on the
bank’s records. Bank Charges would be found on the
payment side of the bank statement but not in the cash
book.
◦ Credit Transfers - These represent funds transferred to the
business bank account from another account through the
banking system. This would first be entered on the bank’s
records. Credit Transfers are found on the receipts side of
the bank statement but not in the cash book.
Reasons for a time difference
◦ Dishonoured Cheques - If a cheque is received by
the business and lodged to the bank but later
discovered by the bank to have some irregularity,
the bank will not accept the cheque. Dishonoured
cheques will be found on the payment side of the
bank statement to show that the cheque was
cancelled but would not appear in cashbook of the
business.
Reconciling accounts
STEP 1
◦ Check each entry in the cash book against the
entries on the bank statement so that those which do
not appear in both can easily be seen. Common
practice is to tick off entries that appear in both the
cash book and bank statement. .

STEP 2
◦ Update the cash book by recording entries that were
not ticked off on the bank statement.
Reconciling accounts
STEP 3
Draw up the bank reconciliation statement as
follows:
a) Begin with the balance as per cash book
b) Add Unpresented cheque (amounts paid by your
company to creditors but is not yet presented to
the bank)
c) Deduct Late Lodgments (amounts collected from
your debtors but not yet credited by the bank).
These are amounts that have been entered on the
debit side of the cash book before paying in, but
which the bank had not recorded at the time the
statement was sent out;
Format of Bank Reconciliation
statement
Bank Reconciliation Statement as at 31 August 2013
Balance as per cash book xxxx
Add: Unpresented cheques + xxx
xxxx
Less: Outstanding (late) lodgements (xxx)
Balance per bank statement xxxx

As the bank would not have recorded the unpresented cheques, the
balance appearing in bank statement would be higher than the cash book
balance which is why the amount of unpresented cheques is added to the
cash book balance in the bank reconciliation.
Since the company records the increase in bank balance in its accounting
records as soon as the cash or cheque is deposited, the balance as per bank
statement would be lower than the balance as per cash book until the
deposit is processed by the bank. Therefore, any outstanding deposits
must be subtracted from the balance as per cash book in the bank
reconciliation statement.
Format of Bank Reconciliation
Statement
*** the question may also state that you use the balance
as per bank statement if this is case the format is:
Bank Reconciliation Statement as on 31 August 2015
Balance as per bank statement xxxx
Add: Outstanding Lodgements xxx
xxxx
Less: Unpresented cheques xxxx
Balance as per cash book xxx

Unpresented cheque amount is subtracted because when the


cheques reach the bank the balance will be reduced by that
amount.
Late Lodgment amount is added because the balance will be
increased when the bank makes the entry.
Format of Bank Reconciliation
Statement
** if there is an overdraft, the opposite is done

Bank Reconciliation Statement as on 31 August 2015


Overdraft as per cash book xxxx
Add: Outstanding Lodgements xxx
xxxx
Less: Unpresented cheques xxxx
Overdraft as per bank statement xxx
Example
Required:
1. Update the cash book
Example 2
Required:
1. Prepare the bank reconciliation statement
Class Activity

3420
Solution
Activity 1
Activity
Activity

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