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Bank Reconciliation

The document discusses bank reconciliations, which reconcile the cash book balance recorded by a business with the bank statement balance recorded by the bank. There are often timing differences between the two records, such as outstanding checks and deposits. The reconciliation process identifies unrecorded items in the cash book like fees, as well as errors in either record. Performing regular bank reconciliations ensures the business' cash records match the bank's records.

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Michael Asiedu
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474 views

Bank Reconciliation

The document discusses bank reconciliations, which reconcile the cash book balance recorded by a business with the bank statement balance recorded by the bank. There are often timing differences between the two records, such as outstanding checks and deposits. The reconciliation process identifies unrecorded items in the cash book like fees, as well as errors in either record. Performing regular bank reconciliations ensures the business' cash records match the bank's records.

Uploaded by

Michael Asiedu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Bank reconciliations

• describe the purpose of bank reconciliations


Learning objectives

• identify the main differences between the cash book


and the bank statement
• identify the bank balance to be reported in the final
accounts
• correct cash book errors or omissions
• prepare bank reconciliation statements
• derive bank statement and cash book balances from
given information.
Overview
The bank reconciliation

The objective of a bank reconciliation is to reconcile


the difference between:
• the cash book balance, i.e. the business’ record of
their bank account, and
• the bank statement balance, i.e. the bank’s records of
the bank account.

Note that debits and credits are reversed in bank


statements because the bank will be recording the
transaction from its point of view, in accordance with
the business entity concept
Differences between the bank statement and the cash book

• When attempting to reconcile the cash book with the


bank statement, two types of difference may be
found:
unrecorded items
timing differences.
Unrecorded items
These are items which arise in the bank statements
before they are recorded in the cash book. Such
‘unrecorded items’ may include:
interest
bank charges
dishonoured cheques
Test your understanding 1
On which side of the cash book should the following
unrecorded items be posted?
• bank charges
• direct debits/standing orders
• direct credits
• dishonoured cheques
• bank interest.
Timing differences
• These items have been recorded in the cash book, but
due to the bank clearing process have not yet been
recorded in the bank statement:

Outstanding/unpresented cheques (cheques sent to


suppliers but not yet cleared by the bank).

Outstanding/uncleared lodgements (cheques received by


the business but not yet cleared by the bank).
$ $

• The bank statement balance needs to be adjusted for these items:


Balance per bank statement X
Less: Outstanding/unpresented cheques (X)
Add: Outstanding/uncleared lodgements
X
Balance per cash book (revised) X
Errors in the cash book and Bank Statement
• The business may make a mistake in their cash book.
The cash book balance will need to be adjusted for
these items.
• The bank may make a mistake, e.g. record a
transaction relating to a different person within our
business’ bank statement. The bank statement
balance will need to be adjusted for these items.
Proforma bank reconciliation
Cash book
Bal b/f X Bal b/f X
Adjustments X Adjustments X
Revised bal c/f X Revised bal c/f X
––– –––
X X
––– –––
Revised bal b/f X Revised bal b/f X
Test your understanding 3
Bank reconciliation statement as at …..
$
Balance per bank statement X
Outstanding cheques (X)
Outstanding lodgements X
Other adjustments to the bank statement X/(X)
Balance per cash book (revised) X
summary

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