CONTENT The purpose of a bank reconciliation statement. The
definition of a bank reconciliation statement. Reasons for
difference between the cash book and bank reconciliation
statements. Nature of the cash book and the bank statement
Preparation of bank reconciliation statement Exercise
Slide 3
THE PURPOSE OF THE BANK RECONCILIATION STATEMENT WHY IS IT
PREPARED? 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. WHAT IS IT USED
FOR? Bank reconciliation statements can be used to explain the
reasons for the differences and to identify errors and omissions in
both cash book and bank statement, so that corrections can be made
as soon as possible.
Slide 4
The definition of a bank reconciliation statement. DEFINITION
of 'Bank Reconciliation Statement:A form that allows individuals to
compare their personal bank account records to the bank's records
of the individual's account balance in order to uncover any
possible discrepancies. (NOTE AS PER INVESTOPEDIA)
Slide 5
REASONS FOR DIFFERENCES BETWEEN THE CASH BOOK AND THE BANK
STATEMENT Uncredited items They are deposits paid into the bank but
occurred too close to the cut-off date of the bank statement and so
do not appear on the current statement but appear on the next
statement. Unpresented cheques They are cheques issued by the firm
that have not yet been presented by recipient to the bank for
payment. Standing orders They are standing instructions from the
firm to the bank to make regular payments
Slide 6
MORE REASONS 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. Dishonored cheques They are
cheques deposited but subsequently returned by the bank due to the
failure of the drawer to pay. Credit transfers They are collections
from customers directly through the bank. Interest allowed by the
bank They are interest received for deposits or fixed
deposits.
Slide 7
NATURE OF THE CASH BOOK AND THE BANK STATEMENT. NATURE OF CASH
BOOKNature of Bank Statement The balance in the cash book is an
asset to the company, therefore: The balance as per the bank
statement is a liability to the bank, therefore: Cash book Debit
represents increase Credit represents decrease Bank Statement Debit
represents decrease Credit represents increase
Slide 8
STEPS NOTE ENTRIES NOT RECORDED IN CASH BOOK BUT IN BANK
STATEMENT WITH THESE ENTRIES UPDATE CASH BOOK WITH THIS UDATED
BALANCE MATCH ENRIES NOT RECORDED IN BANK STATEMENT, IN
RECONCILIATON STATEMENT AND VERIFY FINAL AMOUNT WITH BALANCE ON
BANK STATEMENT.
Slide 9
EXERCISE A companys cash book and bank reconciliation statement
for 2015 appear as follows: (prepare bank statement) Cash Book(bank
column) 2015 1 Balance b/d 2800 3 Gala Stores 1000 10 Shyam
supercomuters 2000 30 Rishi enterprises 1400 7200 2015 Dec 8
Puneeta ltd 1600 20 Uma ltd 700 29 Didu ltd 100 31 Balance c/d 4800
7200
Slide 10
EXERCISE (CONT) Bank Reconciliation Statement as at 31 December
2015 balance as per cash book 4800 Add Unpresented cheque (RK
Advertising) 100 4900 Less Bank deposit not yet entered on bank
statement (1400) Balance in hand as per Bank Statement 3500
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