Explain the functions of a bank reconciliation statement

Explain the causes of differences of the balance of the cash book and balance in the bank statement

Update cash book Prepare a bank reconciliation statement

BANK RECONCILIATION STATEMENT

Cheques receipt Bank interest

income Credit transfer

(C/T)

Cheques payment Bank charges Interest charges Standing order

(S/O) Direct debit (D/D)

or Autopay

Standing Order is the instruction given by the depositor to the bank to make regular payment with a fixed amount to a specific person automatically from the depositor’s bank account.

Direct debit or autopay is the instruction given by the depositor to his / her creditor’s bank to collect the money with a variable amount directly from the depositor’s bank account from time to time.

Cash Book

Receipt / Deposit

- Dr.

(increase in asset) Payment /

Withdrawal

- Cr.

(decrease in asset)

Bank Statement

Deposit - Cr. (increase in

liability) Withdrawal - Dr. (decrease in

liability)

Post-dated cheque Stale cheque Dishonoured cheque Unpresented cheque Uncredited cheque / Uncredited deposit

Cheques which cannot be converted as money when presented at the bank

Possible reasons: Refer to drawer / Post-dated / Insufficient fund

They have not been presented to the bank for money.

Stale cheques are cheques not presented for more than six months from the date of issue.

Time differences in recording

Errors occurred on the Bank account of the Cash Book and / or the Bank Statement

It ensures the users the difference between the balance in bank statement and the balance in cash book can be justified with reasons.

particularparticular Cash BookCash Book Bank Bank StatementStatement

Dr.Dr. Cr.Cr. Dr.Dr. Cr.Cr.

Unpresented chequesUnpresented cheques

Uncredited depositsUncredited deposits

Error on cash bookError on cash book

Bank chargesBank charges

Standing order/direct Standing order/direct debitdebit

Dishonoured chequesDishonoured cheques

Cash BookCash Book Bank Bank StatementStatement

Dr.Dr. Cr.Cr. Dr.Dr. Cr.Cr.

Post-dated chequesPost-dated cheques

Stale chequesStale cheques

Credit transferCredit transfer

Error on bank statementError on bank statement

Enter ALL adjustments in the bank reconciliation statement

Update cash book as well as prepare a bank reconciliation statement