By S.K Chik

1
Bank Reconciliation

• By S.K Chik

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Introduction

• At each given date, our banker should send us a
  statement which shows the details of our bank
  transactions during a particular period and the
  balance at that date. We call this statement the
  bank statement

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• Theoretically, our companys bank account in the
  cash book column should have the same
  transactions and balance as recorded by the bank
  statement.
• The only difference is that the former is
  prepared by our firm while the latter is done by
  the banker
• However, in practice, the balance from the bank
  statement seldom agrees with the balance from the
  bank account in the cash book.

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Reasons for differences

• Bank interest and commission
• The banker calculates these charges, the amount
  will first appear on the bank statement and
  cannot be entered into the cash book until the
  statement is received.
• Uncredited Cheques
• Some cheques that we have received but not yet
  deposited or deposited but not yet credited on
  the bank statement because the cheques have not
  been cleared

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• 3. Unpresented Cheques
• Cheques issued sent to creditors have been
  recorded in the cash book but they have not been
  presented to the bank for payment, so the
  corresponding entry in the bank statement may not
  appear until several days later.
• 4. Autopay Standing Orders and Direct debits
• The banker pays regular amounts on behalf of our
  company, this amount paid will first appear on
  the bank statement at the appropriate date, but
  may not have been entered in the cash book.
• 5.Credit transfer
• Sometimes debtors may not send us the cheques
  for settlement but directly deposit money into
  our bank account. (e.g. EPS) This amount received
  will first appear on the bank statement and
  cannot be entered into the cash book until the
  bank statement is received.

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• 6. Dishonored/ Returned Cheques
• 7. Errors made by the banker or by the company

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Adjustments

• We should adjust the balance of cash book in
  order to agree the balance of bank statement
• The difference that cash book has not been
  entered the transactions of Bank interest,
  Standing orders, Direct debits, Credit transfer
  and dishonored Cheques should be adjusted in Cash
  book

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ITEMS ENTRIES ALREADY MADE ON ENTRIES ALREADY MADE ON CORRECTION REQUIRED ON CASH BOOK
ITEMS CASH BOOK BANK STATEMENT CORRECTION REQUIRED ON CASH BOOK
1. Unpresented Cheque Credited Not yet entered None
2. Uncredited cheque Debited Not yet entered None
3. Credit transfer Not yet entered Credited debit
4. Standing Order Not yet entered Debited Credit
5. Bank Charges Not yet entered Debited Credit
6. Dishonored cheque Debited returned Credit
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(No Transcript)
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Unpresented Cheque
Overstated 180
?
Uncredited Cheque
Understated balance of 50
Unpresented Cheque (adjusted)
?
Credit transfer
Standing Order
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Adjustments
Cash Book (Bank)
20X6
Jan 31 Standing Order 40
31 Bal c/ d 860

900
20X6
Jan 31 Balance b/ f 700
31 Credit transfer 150
31 Understated balance 50
900 Feb 1
Balance b/ d 860
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Bank Reconciliation Statement
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Instead of commencing with the cash book balance,
the bank reconciliation statement can commence
with the bank statement balance and end with cash
book balance as follows
Bank Reconciliation Statement as at 31
January 20X6
500 180
50
230 680
910 (50) 860
Balance as per bank statement Add Uncredited
Cheque Bank error (understated deposit)
Less Unpresenited Cheque
Balance as per Cash Book
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Example

• At the close of business on 28 February 19X9 the
  cash book of Mr. Chong showed a balance of 625
  in his bank. The figure differed from the bank
  balance as shown on his bank statement. The
  following matters account for the difference
• On 28 February 19X9 one of his debtors had paid
  direct to Mr. Chongs banking account the sum of
  42. This transaction had not been entered in the
  cash book.
• During February 19X9 the bank had allowed Mr.
  Chong interest amounting to 54 but this had not
  yet appeared in the cash book.
• Certain cheques drawn by Mr. Chong during
  February 19X9 had not been presented for payment
  by the close of business on 28 February 19X9.
  These were for 21, 17. 57 and 61.
• A standing order for 75 being one quarters rent
  had been paid by the bank on Mr. Chongs behalf
  but this had not yet been entered in the cash
  book.
• During February 19X9, Mr. Chong had paid into his
  banking account a cheque for 44 which he had
  received from a debtors bank. The appropriate
  entry appeared on the bank statement but not in
  Mr. Chongs cash book.

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Required

• Write up the cash book starting with balance of
  625 and draw up the bank statement but not in
  Mr. Chongs cash book.