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
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
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
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 xxxx
Balance as per bank statement
31
August 2015
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
BankasReconciliation
Overdraft per cash book Statement as on 31
xxxx
Add: Outstanding Lodgements xxx
August 2015
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
