By Nancy Keong

Content
-
The purpose of the bank reconciliation statement.
- The definition of the bank reconciliation statement.
- Nature of the cash book and the bank statement.
- Reasons for difference between the cash book and the bank
statement.
- Drawing up a bank reconciliation statement.
- Example
- Exercise


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.
1. THE PURPOSE OF THE BANK
RECONCILIATION STATEMENT

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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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2. THE DEFINITION OF THE BANK
RECONCILIATION 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.




3. REASONS FOR DIFFERENCES
BETWEEN THE CASH BOOK AND THE
BANK STATEMENT.
Unpresented cheques
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.

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Direct debits
They are payments made directly through
the bank.
Bank charges
They are charges made by the bank to the
company for banking services used.

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Dishonoured cheques
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.

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Interest allowed by the bank
They are interest received for deposits or
fixed deposits.
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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
4. NATURE OF THE CASH BOOK AND
THE BANK STATEMENT.
The balance as per the bank statement is
a liability to the bank,therefore:



(represents
the amount
owed to
the clients)
Bank statement
Cr.
(represents
increases)
Dr.
(represents
decreases)
Balance
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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.
Update the
cash book
with any
omissions
and errors
made by the
itself.
Prepare the
bank
reconciliation
statement.
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5. DRAWING UP A BANK
RECONCILIATION STATEMENT
A companys cash book and bank statement for December 1996
appear as follows:
Cash Book(bank column)
1996 $
Dec 1 Balance b/d 2800
3 W.Lee 1000
10 T.Cheung 2000
30 S.Sin 1400
7200
1996 $
Dec 8 K.Wong 1600
20 C.Kwok 700
29 M.Tang 100
31 Balance c/d 4800
7200

Bank Statement
Dr Cr Balance
1996 $ $ $
Dec 1 Balance 2800
3 Cheque deposit 1000 3800
8 Cheque 76343 1600 2200
10 Cheque deposit 2000 4200
11 Dishonoured cheque 2000 2200
11 Service charge 30 2170
12 AutopayRent 250 1920
20 Cheque 76344 700 1220
31 Bank interest 50 1270
31 Credit transfer ---Commission received 300 1570
31 Balance 1570
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Cash Book(bank column)
1996 $
Dec 1 Balance b/d 2800
3 W.Lee * 1000
10 T.Cheung * 2000
30 S.Sin 1400
7200
1996 $
Dec 8 K.Wong * 1600
20 C.Kwok * 700
29 M.Tang 100
31 Balance c/d 4800
7200
* are those appear both in the cash book and the bank statement.
Uncredited item
Unpresented cheque
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Bank Statement
Dr Cr Balance
1996 $ $ $
Dec 1 Balance 2800
3 Cheque deposit * 1000 3800
8 Cheque 76343 * 1600 2200
10 Cheque deposit * 2000 4200
11 Dishonoured cheque 2000 2200
11 Service charge 30 2170
12 AutopayRent 250 1920
20 Cheque 76344 * 700 1220
31 Bank interest 50 1270
31 Credit transfer ---Commission received 300 1570
31 Balance 1570
Direct debit
Bank charge
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Cash Book(bank column)
1996 $
Dec 31 Balance b/d 4800
31 Commission
Received 300
31 Bank interest 50

5150

The corrected cash book and the bank reconciliation as at 31
December 1996 would appear as follows:
1996 $
Dec 31 T.Cheung
Dishonoured cheque 2000
31 Bank chrges 30
31 Rent 250
31 Balance c/d 2870
5150
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Bank Reconciliation Statement as at 31 December 1996
$
Corrected balance in hand as per cash book 2870
Add Unpresented cheque 100
2970
Less Bank deposit not yet entered on bank statement 1400
Balance in hand as per Bank Statement 1570
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The following are extracts from the cash book and the
bank statement 2000,and you are required to:
(a) Write the cash book up to date,and the new balance
as on 31 December 2000,and
(b) Draw up a bank reconciliation as on 31 December
2000.
Cash Book
2000 $
Dec 1 Balance b/d 1740
7 T Ma 88
22 J Li 73
31 K Woo 249
31 M Poon 178
2328
2000 $
Dec 8 A Dai 349
15 R Sun 33
28 G So 115
31 Balance c/d 1831

2328


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Bank Statement
2000 Dr Cr Balance
$ $ $
Dec 1 Balance b/f 1740
7 Cheque 88 1828
11 A Dai 349 1479
20 R Sun 33 1446
22 Cheque 73 1519
31 Credit transfer:J Wong 54 1573
31 Bank charges 22 1551
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Cash Book
2000 $
Dec 31 Balance b/d 1831
31 J.Wong 54
1885

2000 $
Dec 31 Bank charges 22
31 Balance c/d 1863
1885
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Bank Reconciliation Statement as on 31 December 2000

$
Balance per cash book 1863
Add Unpresented cheque 115
1978
Less Bankings not yet on bank statement
(249+178) 427
Balance per bank statement 1551
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