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Bank Bank Reconciliation Reconciliation Statement Statement

Bank reconciliation

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Page 1: Bank reconciliation

Bank Reconciliation Bank Reconciliation StatementStatement

Page 2: Bank reconciliation

JOIN KHALID AZIZJOIN KHALID AZIZ

MA ECONOMICS EXTERNAL MA ECONOMICS EXTERNAL COACHING CLASSES.COACHING CLASSES.

MICRO ECONOMICS, STATISTICS & MICRO ECONOMICS, STATISTICS & MACRO ECONOMICS.MACRO ECONOMICS.

GUESS PAPERS AND NOTES ARE GUESS PAPERS AND NOTES ARE AVAILABLEAVAILABLE

0322-33857520322-3385752

Page 3: Bank reconciliation

JOIN KHALID AZIZJOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS,

B.COM.B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4

ICAP MODULE B, B.COM, BBA, MBA & PIPFA.ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP

MODULE D, BBA, MBA & PIPFA.MODULE D, BBA, MBA & PIPFA.

CONTACT:CONTACT: 0322-33857520322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,

KARACHI, PAKISTAN.KARACHI, PAKISTAN.

Page 4: Bank reconciliation

The purpose of the bank The purpose of the bank reconciliation statementreconciliation statement

Due to the timing difference, omissions and errors Due to the timing difference, omissions and errors made by the bank or the firm itself.made by the bank or the firm itself.

The balance of the bank statement and the bank The balance of the bank statement and the bank account in the cash book rarely agree.account in the cash book rarely agree.

Bank reconciliation statements can be used Bank reconciliation statements can be used To explain the reasons for the differences and to To explain the reasons for the differences and to

identify errors and omissions in both documents, so identify errors and omissions in both documents, so that corrections can be made as soon as possible.that corrections can be made as soon as possible.

Page 5: Bank reconciliation

Reasons for differences between the Reasons for differences between the cash book balance and the bank cash book balance and the bank

statement balancestatement balance1.1. Uncredited itemsUncredited items

They are deposits paid into the bank. These items They are deposits paid into the bank. These items occurred too close to the cut-off date of the bank occurred too close to the cut-off date of the bank statement and so do not appear on the statement. statement and so do not appear on the statement. They will appear on the next statement. They will appear on the next statement.

Banking made shown in the cash book

But not on the bank statement

Page 6: Bank reconciliation

2.2. Unpresented chequesUnpresented cheques They are cheques issued by the firm that have not They are cheques issued by the firm that have not

yet been presented to its bank for payment.yet been presented to its bank for payment.

3.3. Standing ordersStanding orders They are standing instructions from the firm to the They are standing instructions from the firm to the

bank to make regular payments.bank to make regular payments.

4.4. Direct debitsDirect debits They are payments made directly through the bank.They are payments made directly through the bank.

5.5. Bank chargesBank charges They are charges made by the bank to the companThey are charges made by the bank to the compan

y for banking services used.y for banking services used.

Page 7: Bank reconciliation

6.6. Dishonoured chequesDishonoured cheques They are cheques deposited but subsequently rThey are cheques deposited but subsequently r

eturned by the bank due to the failure of the deturned by the bank due to the failure of the drawer to pay.rawer to pay.

7.7. Credit transfers / direct creditsCredit transfers / direct credits They are money received from customers direcThey are money received from customers direc

tly through the banking system.tly through the banking system.

8.8. Interest allowed by the bankInterest allowed by the bank They are interest received for deposits or fixed They are interest received for deposits or fixed

deposits.deposits.

Page 8: Bank reconciliation

Nature of the cash book and Nature of the cash book and bank statementbank statement

Cash Book (bank column only)

Debit represents an increase Credit represents an decrease

Bank Statement

Dr Cr Balance

(representsdecrease)

(representsincrease)

(representsthe amountowned to the clients)

Page 9: Bank reconciliation

Drawing up a bank reconciliation Drawing up a bank reconciliation statementstatement

1.1. To reconcile the Bank statement with the To reconcile the Bank statement with the Corrected Cash BooksCorrected Cash Books

2.2. To reconcile the Bank statement with To reconcile the Bank statement with Unadjusted Cash BookUnadjusted Cash Book

Page 10: Bank reconciliation

To reconcile the bank statement with To reconcile the bank statement with corrected cash bookcorrected cash book

Three steps:Three steps:1. Check the bank statement and the cash book1. Check the bank statement and the cash book to identify the items which have beento identify the items which have been omitted.omitted.2. Update the cash book with any omissions and erro2. Update the cash book with any omissions and erro

rs made by the firm itself.rs made by the firm itself.e.g. Credit transfers (debit cash book)e.g. Credit transfers (debit cash book)

Bank interest (debit cash book)Bank interest (debit cash book) Standing orders / direct debits (credit cash book)Standing orders / direct debits (credit cash book) Bank charges (credit cash book)Bank charges (credit cash book) Dishonoured cheques (credit cash book)Dishonoured cheques (credit cash book)

3. Prepare the bank reconciliation statement3. Prepare the bank reconciliation statement

Page 11: Bank reconciliation

Bank Reconciliation Statement as at XXXX

$ $

Corrected balance in hand as per Cash Book x

Add Unpresented cheques x

Wrong credits by the bank x x

x

Less Bank deposits not yet entered on Bank Statement x

Wrong debits by the bank x x

x

Page 12: Bank reconciliation

Example 1Example 1

Page 13: Bank reconciliation

Cash book(Bank column)1996 $Dec 1 Bal b/f 2800 3 W Lee 1000 10 T Cheung 2000 30 S Sin 1400

1996 $Dec 8 K Wong 1600 20 C Kwok 700 29 M Tang 100 31 Bal c/f 4800

7200 7200

Bank Statement1996 Dr Cr Balance $ $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 charges 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 1570

Uncrediteditems

Unpresented cheque

Bank charges

Direct debit

Question:

Page 14: Bank reconciliation

Cash Book (Bank Column)2010 $ 2010 $

31 Commission Rec. 300

31 Bank Interest 50

5,150

Dec 31 Balance b/f 4,800 Dec 31 T. Cheung –

Dishonoured cheque 2,000

31 Bank charges 30

31 Rent 250

31 Balance c/f 2870

5,150

•Identify the items which have been omitted in the cash book

Answer:

Page 15: Bank reconciliation

Bank Reconciliation Statement as at 31 Dec 2010

$

Corrected balance in hand as per Cash Book

Unpresented cheques 100

Bank deposits not yet entered on Bank Statement 1400

Balance in hand as per Bank Statement

2870

1570

Add

Less

2970

•Only adjusted caused by timing difference

Page 16: Bank reconciliation

Two steps :Two steps :

1. Check the bank statement and the cash book to 1. Check the bank statement and the cash book to identify the items which have been omitted.identify the items which have been omitted.

2. Prepare the bank reconciliation statement.2. Prepare the bank reconciliation statement.

To reconcile the bank statement with To reconcile the bank statement with the Unadjusted cash bookthe Unadjusted cash book

Page 17: Bank reconciliation

JOIN KHALID AZIZJOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS,

B.COM.B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4

ICAP MODULE B, B.COM, BBA, MBA & PIPFA.ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP

MODULE D, BBA, MBA & PIPFA.MODULE D, BBA, MBA & PIPFA.

CONTACT:CONTACT: 0322-33857520322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,

KARACHI, PAKISTAN.KARACHI, PAKISTAN.

Page 18: Bank reconciliation

Begin with the unadjusted cash book Begin with the unadjusted cash book balance and end with the bank statement balance and end with the bank statement

balancebalanceBank Reconciliation Statement as at XXXX

$ $Corrected balance in hand as per Cash Book xAdd Credit transfers x Bank interest x Unpresented cheques x Wrong credits by the bank x x

xLess Standing orders / direct debits x Bank charges x Dishonoured cheques x Bank deposits not yet entered on Bank Statement x Wrong debits by the bank x xBalance in hand as per Bank Statement x

Amount received on bank statementBut not on bank statement

Timing difference

Bank error

Page 19: Bank reconciliation

Example 2Example 2

The facts are the same as Example 1, but The facts are the same as Example 1, but the cash book was not updated.the cash book was not updated.

Page 20: Bank reconciliation

Bank Reconciliation Statement as at 31 Dec 2010

$ $Corrected balance in hand as per Cash Book 4,800Add Credit transfers 300 Bank interest 50 Unpresented cheques 100 __450

5,250Less Bank charges 30 Dishonoured cheques 2,000 Bank deposits not yet entered on Bank Statement 1,400 Direct debit 250 3,680

1,570

Answer:

Page 21: Bank reconciliation

Other IssuesOther Issues

A.A. Post-dated chequePost-dated cheque• It is a cheque which has not yet matured within the cuIt is a cheque which has not yet matured within the cu

rrent accounting period.rrent accounting period.

Accounting treatmentAccounting treatment• The cheque should be held by the cashier and no entrThe cheque should be held by the cashier and no entr

y should be made until the cheque becomes mature.y should be made until the cheque becomes mature.• If a post-dated cheque has been entered in the cash boIf a post-dated cheque has been entered in the cash bo

ok, make correcting entries.ok, make correcting entries.

Dr DebtorsCr Bank

With the amount of the post-dated cheque

Page 22: Bank reconciliation

B.B. Stale chequeStale cheque• It is a cheque which has been drawn for more It is a cheque which has been drawn for more

than 6 months but has not yet gone through ththan 6 months but has not yet gone through the bank of the drawee.e bank of the drawee.

Accounting treatment:Accounting treatment:

Dr BankCr Creditor

With the amount of the state cheque

Page 23: Bank reconciliation

C.C. Errors made by the bankErrors made by the bank

i.i. Errors corrected within the current Errors corrected within the current accounting periodaccounting period

ii.ii. Errors not corrected within the current Errors not corrected within the current accounting periodaccounting period

Page 24: Bank reconciliation

• Errors corrected within the current accounting period -As the error has been corrected by the bank within current accounting period, no adjustment is needed.

Page 25: Bank reconciliation

Bank Statement

Dr Cr Balance

2010 $ $

Dec 1 Balance 240

1 Cheque 54321 520 280 O/D

2 Credit 2,000 1,720

8 Cheque 54232 1,600 120

20 Cheque 10674 300 180 O/D

20 Adjsutment 300 120

Example 3 :

No adjustmentshould be made

Page 26: Bank reconciliation

• Errors not corrected within the current Errors not corrected within the current accounting periodaccounting period

Example 4 :Example 4 :• An amount of $1,000 which should be An amount of $1,000 which should be

credited into the owner’s personal account credited into the owner’s personal account was wrongly credited by the bank to the was wrongly credited by the bank to the company’s bank account. The balance of the company’s bank account. The balance of the cash book is $4,000 and the balance of the cash book is $4,000 and the balance of the bank statement was $5,000 at 31 Dec 2010bank statement was $5,000 at 31 Dec 2010

Page 27: Bank reconciliation

Bank Reconciliation Statement as at 31 Dec 2010$

Balance in hand as per Cash Book 4,000

Add wrong credit by the bank 1,000

5,000

•As it is an error made by the bank, no adjustment is needed in the company’s cash book

Answer:

Page 28: Bank reconciliation

D.D. Different opening balances of the cash Different opening balances of the cash book and the bank statementbook and the bank statement

The following steps should be taken:The following steps should be taken:

1.1. Reconcile the opening cash book balance with Reconcile the opening cash book balance with the opening bank statement balance.the opening bank statement balance.

2.2. The adjusting items for the opening balances The adjusting items for the opening balances should not appear in the bank reconciliation should not appear in the bank reconciliation statement of the current period.statement of the current period.

3.3. Prepare the bank reconciliation statement.Prepare the bank reconciliation statement.

Page 29: Bank reconciliation

Example 5Example 5

Page 30: Bank reconciliation

Cash book(Bank column)1996 $Dec 1 Bal b/f 10600 2 C Lee 2800 8 P Wong 1538 31 T Kong 1300

1996 $Dec 2 Bank charges( Nov) 500 28 K Tong-742 1000 29 C Au-743 1400 30 China Ltd-744 2100 31 Bal c/f 11238

7200 7200

Bank Statement1996 Dr Cr Balance $ $Dec 1 Balance 11500

2 Credit 1000 12500 2 Credit 2800 15300 3 736 2400 12900 8 Credit 1538 14438 22 Standing order-rent 4000 10438 24 Service charges 200 10238 28 742 1000 9238 31 Balance 9238

Uncrediteditem

Unpresented cheque

Question :

Adjusting items for opening balance

Page 31: Bank reconciliation

Bank Reconciliation Statement as at 1 Dec 2010

$ $Balance in hand as per Cash Book Add

Less

•The adjusting items for the opening balance should not appear inthe bank reconciliation statement as at 31 Dec 2010

Step 1

Unpresented cheque 240010,600

13,000uncredited item 1,000Bank charges 500 1,500

11,500Balance in hand as per Bank Statement

Answer

Page 32: Bank reconciliation

Cash Book (Bank Column)2010 $ 2010 $

Dec 31 Balance b/f 11,238

11,238

Dec 31 Rent 4,000

31 Service charges 200

31 Balance c/d 7038

11,238

Step 2

Page 33: Bank reconciliation

Bank Reconciliation Statement as at 31 Dec 2010$

Corrected balance as per Cash Book

Add

Less

Balance in hand as per Bank Statement

7,038

Unpresented cheques ($1,400+$2,100) 3,500

10,538

Uncredited item 1,300

9,238

Step 3

Page 34: Bank reconciliation

E.E. Bank overdraftsBank overdraftsWhen there is a bank overdraft, the presentation When there is a bank overdraft, the presentation

of the bank reconciliation statement can be:of the bank reconciliation statement can be:

a.a. the same as those needed for a debit balance, the same as those needed for a debit balance, but begins with a negative figure, orbut begins with a negative figure, or

b.b. the opposite of those needed for a debit the opposite of those needed for a debit balance. balance.

Page 35: Bank reconciliation

Example 6Example 6

Page 36: Bank reconciliation

Cash book(Bank column)1996 $Dec 1 Bal b/f 500 6 Cash 50 13 C Lee 200 31 R Wong 390 31 Bal c/d 150

1996 $Dec 8 A Tong 300 16 T Chan 500 28 Textile Ltd 490

1997Jan 1 Bal b/d 150

1290 1290

Bank Statement1996 Dr Cr Balance

$ $Dec 1 Balance 500

6 Cash 50 550 8 A Tong 300 250 13 C Lee 200 450 16 T Chan 500 50 O/D 29 United Trust-standing order 270 320 O/D

31 Bank charges 40 360 O/D

31 Balance 360 O/D

Uncrediteditem

Unpresented cheque

Question :

Page 37: Bank reconciliation

Cash Book (Bank Column)2010 $ 2010 $

Dec 31 Balance c/f 460

460

Dec 31 Balance b/f 150

31 United trust 270

31 Bank charges 40

460

Answer:

Page 38: Bank reconciliation

Bank Reconciliation Statement as at 31 Dec 2010$

Corrected balance as per Cash Book (Overdraft)

Add

Less

Balance as per Bank Statement (overdraft)

Unpresented cheques 490

Uncredited item 390

(460)

(360)

30

Page 39: Bank reconciliation

JOIN KHALID AZIZJOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS,

B.COM.B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4

ICAP MODULE B, B.COM, BBA, MBA & PIPFA.ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP

MODULE D, BBA, MBA & PIPFA.MODULE D, BBA, MBA & PIPFA.

CONTACT:CONTACT: 0322-33857520322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,

KARACHI, PAKISTAN.KARACHI, PAKISTAN.