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Our Confession. ACT 110 Is EASY POP!. Because, Death and Life is in the Power of the Tongue!. Lecture Notes 8. Bank Reconciliation. Bank Reconciliation. Introduction Monies deposited in and paid out of the business’s bank account are usually recorded in the Bank Column of the cash Book. - PowerPoint PPT Presentation
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ACT 110Is EASY
POP!
Our Confession
Because, Death and Life is in the Power of the Tongue!
Bank ReconciliationLecture Notes 8
Bank Reconciliation
Introduction• Monies deposited in and paid out of the business’s bank
account are usually recorded in the Bank Column of the cash Book.
• The bank also keeps such a record of items deposited and paid from the account, which should obviously match with the business’ record.
• However, there might be items paid into and out of our account at the bank which we have not recorded in the cash book.
Bank Reconciliation
Introduction• To see what these are we need a copy of our account
kept at the bank which is called a “Bank Statement”.• Bank Statement – a monthly statement of account mailed
by a bank to each of its customers with checking or other accounts, recording the banking transactions and current balance during a period and usually including canceled checks.
• There may also be items that are recorded in the cash book, but not showing up on the bank account.
• As such, a Bank Reconciliation Statement should be prepared in order determine why there is a difference.
Bank Reconciliation
Definition• Made up of two (2) words “Bank” & “Reconciliation”• Bank – Closing balances on
– Bank Column of the Cash Book– Bank Statement balance of the business’ bank account
• Reconciliation - is a process that comes from the root “To Reconcile”, which means:– To Make agree– To explain disagreement in order to make aagree– To bring into agreement or harmony; make compatible or
consistent: to reconcile differing statements; to reconcile accounts.
Bank Reconciliation
Definition• A calculation comparing the cash book with the bank
balance.
• It should show whether or not errors have been made either in the bank columns of the cash book or on the bank statement.
• It is not a statement of double entry but just one explaining the difference between the bank balance and the cash book bank column.
Bank Reconciliation
Why do we need it?• The bank reconciliation statement is drawn up so as to
cause the bank balance as shown by the bank statement to agree with the bank balance as shown by the bank column of the cash book.
• The purpose of a bank reconciliation statement in addition to determining the items responsible for the difference is to ascertain the correct bank balance as at a specific time and date, since the bank balance is needed for the balance sheet.
Bank Reconciliation
Reasons for Differences• Reasons for difference between the two sources of
information are broadly categorised as:– Timing difference, – Informational Difference– and Errors.
Bank Reconciliation
Reasons for Differences• Specific factors responsible for cash book balance and
balance as shown by the bank statement being different:-
1. Deposits in transit2. Unpresented cheques3. Bank charges4. Bank credits5. Bank or depositor’s errors
Bank Reconciliation
Deposits in Transit• Cash deposits made at the end of the month into the
businesss’ bank in one month but received and recorded by the bank in the following month.
• Deposits in transit at the end of one months would be included in the next month bank state therefore it must be deducted from the deposits for the month as per bank statement to ascertain those deposits received during the month for that month.
Bank Reconciliation
Unpresented Cheques • These are cheques which have been paid and
dispatched to individuals or business, but which have not been presented for payment at the payer’s bank.
• In effect these are items that are entered on the credit side of the cash book and had not yet been entered in the bank’s records.
• Unpresented cheques at the end of one month may be presented during the next month.
Bank Reconciliation
Unpresented Cheques • Those presented outstanding cheques from the previous
period must be deducted from the cheques received during the month to derive those cheques paid and encashed at the bank during the month under consideration.
Bank Reconciliation
Bank Charges• These are charges which have been dispatched to the
depositor’s balance for such items as:– Bank Services, – Printing Cheques, – Safe Deposit Rentals – and Not Sufficient Funds (NSF) Cheques.
• The depositor may not be aware of these charges until the receipt of the bank statement.
Bank Reconciliation
Bank Credits• Collection or deposits by the bank for the benefit of the
account holder that may not be known to them until the bank statement is received.
Bank or Depositors Errors• Errors on either the part of the bank or the part of the
depositor causing the bank balance to disagree with the depositor’s book balance.
Bank Reconciliation
Standing Order• A standing order is a request by a customer for the bank
to make payments to third parties on a periodic basis.• The customer records the transaction in his books on
receipt of his bank statement, as he is unaware as to when or if the bank had made the payment on his behalf.
ACT 110Is EASY
POP!
Our Confession
Because, I am taking responsibility for my own
Success or Failure!
Bank ReconciliationModel
NAMEBANK RECONCILIATION STATEMENT FOR MONTH, YEAR
BALANCE AS PER CASH BOOK 000
Add:Note Collectible, Direct Deposit Bank Credit 00Interest on Note 00Interest Earned 00Cash Book Error: Understated Deposit 00Cash Book Error: Overstated Cheque 00Cash Book Error: Omitted Deposit 00 000 000
BALANCE AS PER Bank Statement 000
Add:Deposits in transit 00Bank Error: Understated Deposit 00Bank Error: Overstated Cheque 00Bank Error: Incorrect Deductions 00Bank Error: Omitted Deposit 00 000 000
Bank ReconciliationModel
NAMEBANK RECONCILIATION STATEMENT FOR MONTH, YEAR
BALANCE AS PER CASH BOOK 000
Add:“Additions”
Less:Bank Charges 00Standing Order 00Interest Paid 00Dishonoured Cheques 00Cash Book Error: Overstated Deposit 00Cash Book Error: Understated Cheque 00Cash Book Error: Omitted Cheque 00 (000) Corrected Cash Book Balance 000
BALANCE AS PER Bank Statement 000
Add:“Additions”
Less:Unpresented Cheques 00Bank Error: Overstated Deposit 00Bank Error: Understated Cheque 00Bank Error: Incorrect Increases 00Bank Error: Omitted Cheque 00 (000)
Corrected Bank Statement Balance 000
Bank Reconciliation
Dishonoured Cheques• When a cheque is received from a customer and paid
into the bank, it is recorded:– Debit Side of the Cash Book Bank Column– Credit Side of the Bank Statement.
• If at a later date the customers bank refuses to pay us the amount due on the cheque – This is known as a Dishonoured Cheque.
Bank Reconciliation
Dishonoured Cheques• There are several reasons for this as shown in this
example – – Let us suppose that K. King gave us a cheque for $5,000
on May 20, 2002. We bank it and a few days later the bank returns the cheque to us.
1. Figures and Words Don’t Match – “If King had put $5,000 in figures, but had written in words five thousand five hundred dollars on the cheque” – This cheque would not be honoured by the bank and
would have to be returned to King for amendment.
Bank Reconciliation
Dishonoured Cheques• There are several reasons for this as shown in this
example – – Let us suppose that K. King gave us a cheque for $5,000
on May 20, 2002. We bank it and a few days later the bank returns the cheque to us.
2. Stale Dated Cheques – Cheques are considered stale dated after six (6) months after the date on the cheque. The bank will not pay cheques 6 months old.
• “If King had put 2001 on the cheque instead of 2002 then the cheque would be returned by the bank.”
Bank Reconciliation
Dishonoured Cheques• There are several reasons for this as shown in this
example – – Let us suppose that K. King gave us a cheque for $5,000
on May 20, 2002. We bank it and a few days later the bank returns the cheque to us.
3. Not Sufficient Funds Cheques – “If King only had a balance of $2,000 in his account the bank will not honour the cheque of $5,000 because it will result in a overdraft on his account.”
• The bank will write on the cheque “refer to drawer” and return in to us as a dishonoured cheque.
Bank ReconciliationDishonoured ChequesAccounting Entries
2002 2002
K. King
May 1 Balance b/d 5,000 May 20 Bank 5,000
May 25 Bank: Dis Chq 5,000
2002 2002
Bank Account
May 20 K King 5,000 May 25 Bank: Dis Chq 5,000
Bank Reconciliation
Bank Overdraft• An overdraft occurs when money is withdrawn from a
bank account and the available balance goes below zero.
• In this situation the account is said to be "overdrawn".• It is shown by a credit balance in the cash book or a
debit balance on the bank statement.• The adjustment needed to reconcile the bank overdraft
is the complete opposite of an account that is not overdrawn.
Bank Reconciliation
Bank Overdraft – ComparisonBalances
Overdraft $ $
Balance/Overdraft as per cash book 0000 0000Adjustments
Unpresented Cheques Plus LessBank lodgments Less Plus
Balance/Overdraft per Bank Statement 0000 0000