Barbara Cooney

Bank reconciliation

Learning Objectives1. Explain the bank account per the business

books (NL) versus the bank statement received from the bank

2. Compare the bank account per the business books (NL) versus the bank statement. Explain the differences?

3. Explain the functions of a bank reconciliation statement

4. Update cash book5. Prepare a bank reconciliation statement

Methods of Receipts and PaymentsReceiptsCheques receiptBank interest

incomeCredit transfer

(C/T)

PaymentsCheques paymentBank chargesInterest chargesStanding order

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

Payments by a BankStanding 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.

S=Same

Direct debit is the instruction given by the depositor to the bank to pay the money with a variable amount directly from the depositor’s bank account from time to time.

D=different

Bank account per your books (Asset)

Dr Cr Drying your eyes Crying

your eyesMoney in / good thing

Money out / bad thingReceipt / Deposit Payment

/ WithdrawalIncrease in Asset Decrease in

an asset

Bank a/c per your books –Exercise: Dr or Cr side???

InsuranceElectricityPaying a creditor (by cheque)Money from a debtor (cheque)Gas bill by DDTelephone bill by SO Sale by chequeReceipt of capitalPetty cash top-upBank chargesLodgement into your bank a/c

Bank statement – From the view of the bank

Dr CrMoney out

Money in Withdrawal/payment

Receipt / Deposit

Bank statement – an example

Purpose of Bank reconciliation - comparing

1. What the bank say you have V What you think you have

2. Bank statement balance V What is on your books (NL)

3. Verifying the bank balance per your books is correct (for audit purposes)

When there is a difference

Bank reconciliationCompares / Reconciles / highlight

differences

Bank statement balanceVBank account per your books (NL)

Reasons for differences

Reasons for DifferencesTime differences in recording - Money lodged in

bank but not cleared or bank statement not updated by time sent out, cheques not presented by creditor

Unknown transactions – bank charges, Dishonored cheque, credit transfers, DD

Errors occurred on the Bank account of your books and/or the Bank Statement e.g. entering on wrong side, incorrect amount

Unpresented ChequesThey have not been presented to the

bank for money.

Steps to Creating bank reconciliation

Compare the bank account per NLs to bank statement, tick for common items. Usefor items not on bank statement

Compare bank statement to bank a/c per NL => mark common items with and mark items with not on bank a/c (NL)

Update the bank a/c per NL. Start with b/d at the end of the old bank a/c

Balance the updated bank a/c per NL

Prepare bank reconciliation

Think good or bad surprise?

Updating bank a/c per books – remember

Bank account per your books (Asset)

Dr Cr Drying your eyes Crying

your eyesMoney in / Good thing Money out /

bad thing Receipt / Deposit Payment

/ WithdrawalIncrease in Asset Decrease in

an asset

Think good or bad surprise?

Bank reconciliation statementBalance (at end) as per bank statement

x

Add lodgements not yet credited by the bank +

Less cheques not yet presented for payment -

Balance (at end) of adjusted bank account (book) x

Learning Objectives re-visited

1. Explain the bank account per the business books (NL) versus the bank statement received from the bank

2. Compare the bank account per the business books (NL) versus the bank statement. Explain the differences?

3. Explain the functions of a bank reconciliation statement

4. Update cash book5. Prepare a bank reconciliation statement