Bank Reconciliation Statement
Bank Reconciliation Statement
STATEMENT
•In the books of a business, funds paid
into and out of bank are entered into
the bank columns of the Cash Book. At
the same time, the bank will also be
recording the flows of funds into and
out of the business cash account
•The entries appearing on a business's
bank statement should be exactly be the
same as those in the business cash book.
The balance shown by the bank statement
should be the same as the cash book
balance
•There may be items paid into or out of the business
bank account which have not been recorded in the
Cash Book. And there may be items entered in the
Cash Book that have not yet been entered in the
bank’s records of the account. To see if any of these
things have happened, the Cash Book entries need
to be compared to the record of the account held by
the bank. Therefore this is done by making bank
reconciliation.
What causes the difference between the cash
book balance and bank statement balance?
i. Outstanding cheques/unpresented chq
Cheques drawn and entered in cash book
but not presented at bank for payment.
ii.Uncredited cheques
Cheques received and entered in cash
book but not credited by bank
. Standing
iii orders
The order by the account holder to bank to
make regular payments which are not yet
reported in the cash book.
iv. Other omission including:
•Interest charged by bank by overdraft
•Bank charges
•Bill of exchange, other payments.
•Dishonored cheques
Adjusting a cash book
After comparing the cash book and
bank statement there are some items
which may miss on either sides. The
cash book should be adjusted by
recording the missing items to have the
correct cash book balance
Items to reconcile the correct cash book
balance.
i) Payments made into the account or from the
account by way of standing order, which have not
yet been entered in the cash book.
ii) Dividends received (on investments held by
the business), paid direct into the bank account
but not yet entered in the cash book.
iii) Bank interest and bank charges, not yet
entered in the cash book
Procedure of bank reconciliation statement
•There are two approaches in order to reconcile:
i) By starting with adjusted balance as per
cash book
Add unpresented cheques
Less uncredited cheques
You will get the correct balance of bank
statement
) By starting with balance as per bank
ii
statement
Less unpresented cheques
Add uncredited cheques
You will get the correct and adjusted
balance of cashbook
Example 1.
•At 30 September 2006, the balance in the
cash book of Wordsworth Co was $805.15
debit. A bank statement on 30 September
2006 showed Wordsworth Co to be in credit
by $1,112.30.
•On investigation of the difference between the
two sums, it was established that:
(a) The cash book had been undercast by
$90.00 on the debit side*.
b) Cheques paid in not yet credited by the bank
amounted to $208.20, called outstanding
lodgments.
c) Cheques drawn not yet presented to the bank
amounted to $425.35 called unpresented
cheques.
i) Adjust the cash book balance
ii) Prepare a statement reconciling the balance
per bank statement to the balance per cash book.
(a)Adjusting cash book balance
Cash book balance b/f 805.15
Add Correction of undercast 90.00
Corrected cash book bal. 895.15
b) Bank reconciliation Statement
(i) Balance per bank statement 1,112.30
Add uncredited cheques 208.20
1,320.50
Dr A Cash Book Cr
2009 £ 2009 £
Jan 1 Balance b/d 320 Jan 10 C Morgan 110
16 R Lomas 160 20 M McCarthy 90
24 V Verity 140 28 Cheshire CC rates 180
31 J Soames 470 30 M.Peck 200
o 31 R Johnson 90 31 Balance c/d 600
1,180 1,180
Feb 1 Balance b/d 600
Bank Statement
Withdrawals Deposits
Balance
2009 £ £ £
Jan 1 Balance b/d 320
12 10627 110 210
16 Deposit 160 370
23 10628 90 280
24 Deposit 140 420
28 Direct debit: Cheshire CC 180 240
31 Bank Giro credit: R Johnson 90 330
From the above cash book and bank
statement make bank reconciliation