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.
1.1. THE PURPOSE OF THE BANK THE PURPOSE OF THE BANK RECONCILIATION STATEMENTRECONCILIATION 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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2.2. THE DEFINITION OF THE BANK RECTHE DEFINITION OF THE BANK RECONCILIATION STATEMENTONCILIATION STATEMENT
• Uncredited items– They are deposits paid into the bank.These it
ems 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.
3.3. REASONS FOR DIFFERENCES BETWEREASONS FOR DIFFERENCES BETWEEN THE CASH BOOK AND THE BANK STEN THE CASH BOOK AND THE BANK STATEMENT. ATEMENT.
• Unpresented cheques– They are cheques issued by the firm that hav
e 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)
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4. NATURE OF THE CASH BOOK AND TH4. NATURE OF THE CASH BOOK AND THE BANK STATEMENT.E 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 RECONCILIATI5. DRAWING UP A BANK RECONCILIATION STATEMENTON STATEMENT
A company’s 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 Autopay—Rent 250 1920
20 Cheque 76344 700 1220
31 Bank interest 50 1270
31 Credit transfer ---Commission received 300 1570
31 Balance 1570Back
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 Autopay—Rent 250 1920
20 Cheque 76344 * 700 1220
31 Bank interest 50 1270
31 Credit transfer ---Commission received 300 1570
31 Balance 1570Direct debit Bank charge Back
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
5150Back
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 Statement2000 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 Book2000 $
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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