bank reconciliation

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PRESENTATION TOPIC

Contents• Definition of bank reconciliation statement

• Cash book VS bank statement

• The nature of cash book and bank statement

• Features of bank reconciliation statement

• Importance of bank reconciliation statement

• Causes of differences in cash book and bank statement

• Sample of bank reconciliation

• Two example of bank reconciliation

What is Bank Reconciliation Statement?

What are the differences between Cash Book and Bank Statement?

Cash Book Vs Bank Statement

Cash Book1. It is written by the depositor.

2. Money deposited is recorded on the debit side and money withdrawn on credit side

3. Its debit balance shows cash at bank and credit balance shows bank overdraft.

Bank Statement1. It is written by the bank but

remains in the depositor's possession.

2. Money deposited is entered on the credit side and withdrawn on the debit side.

3. Its debit balance shows bank overdraft and credit balance shows cash at bank.

The nature of the cash book and bank statement

•The balance in the cash book is an asset to the company, therefore:

Cash Book

A debit represents an increase

A credit represents an decrease

•The balance as per the bank statement is liability to the bank, therefore:

Bank StatementDr. Cr. Balance

Represents decrease Represents increase Represents the amount owed to the clients

1. It is just a statement not an account

2. It is not a part of journal and ledger

3. It is prepared for a particular day, not for a period

4. It is prepared at regular intervals, say every month, three month, 6 month etc according to the requirement of the company

5. It is prepared by a person who has an account with a bank, A bank does not prepare it.

6. It explain the causes of disagreement between bank statement and cash book.

Features of Bank Reconciliation Statement

1. It assists to cause of differences between cash and passbook balances.

2. It assists to calculate the actual bank balances.

3. It assists to find out mistakes committed in cashbook and passbook

4. It shows the transaction not recorded either by cash book or pass book

5. It assists to maintain healthy relation between banks its customers

Importance of Bank Reconciliation Statement

Causes of Differences in Cash Book and Bank Statement

1. Time gap in recording transactions or2. Errors committed in recording transactions

Differences caused by the time gap Deposit outstanding: -Cash receipts recorded by the depositor by not included in bank statement Cheques outstanding: -Cheques issued by the firm that have not yet presented to its bank for payment Collection by bank: -Money received from customers directly through the banking system Non-sufficient fund(nsf): -Cheques deposited but dishonored by the bank Bank profit/dividends: -Profit or dividends received for deposits or fixed deposits Bank charges: -Charges made by the bank to the firm for banking services used but not included in cash book

Differences caused by Errors committed Errors committed by the company

I. Cheques issued to some creditors but omitted to be recorded in the Cash book or recorded twice

II. Cheques deposited into the bank omitted to be entered in the Cash book or recorded twice

III. Error in totaling or balancing the bank column of the Cash book

Errors committed by bank Something bank records a wrong entry in the customer’s account

which causes a differences in two balances.

Sample of Bank Reconciliation Statement

‘X’ Company

Bank Reconciliation StatementBank Balance $ Book Balance $

Bank balance

Add:Deposit outstandingError that understated by bank balanceLess:Cheques outstandingError that overstated by bank balance

Correct cash balance

***

******

(***)(***)

***

Book balance

Add:Collection by bankError that understated by book balanceLess:NSFBank chargesError that overstated by book balance


***

******

(***)(***)(***)

***

Example 1 The books of SAMSUNG company showed a balance of tk. 16,690 on November 30, 2016. the

bank statement as on that date showed a balance of tk. 18,500. on comparing bank statement with Cash records, the following facts were reveals:

I. A cheques for tk. 2,000 drawn by Symphony company was wrongly charged by the bank to the account of SAMSUNG company.

II. A non-interest bearing note receivable for tk. 1,890 owned by the SAMSUNG company for the bank for collection, had been collected on November 28 ,2016 and the bank had made a charge of tk. 30 for collection.

III. A cheque for amount of tk. 4,000 has been returned for insufficient fund. No entry was made in cash records.

IV. A cheque for tk. 2,425 issued on November 22 in payments for office equipment has been erroneously entered in the according record as tk. 3,425.

V. A deposit of tk. 1,050 was transit , it has been mailed to the bank on November 30.VI. Cheques outstanding on November 30 2016 were tk.6,000

Required: Prepare bank reconciliation statement on November 30, 2016. Give necessary journal entries to rectify the cash book.

SAMSUNG Company Bank Reconciliation Statement

November 30, 2016

Bank Balance TK. Book Balance Tk.

Bank balance

Add:Error that understated by bank balance (i)Deposit outstanding (v)

Less:Cheques outstanding (vi)


18,500

2,000

1,050

(6,000)

15,550

Book balance

Add: Notes collection by bank (ii)Error that understated by book balance (iv)

Less:Service charge (ii)Non sufficient fund(NSF) (iii)


16,690

1,8901,000

(30)(4,000)

15,550

SAMSUNG Company Journal

Date Explanation REF Debit(Tk.)

Credit(Tk.)

Cash Notes receivable(Recorded Notes collection by bank)

Cash Accounts payable(Recorded error that understated by book balance)

Service charge Cash(Recorded service charge)

Accounts receivable Cash(Recorded NSF)

1,890

1,000

30

4,000

18,90

1,000

30

4,000

EXAMPLE 2

The May 31 , 2016 bank statement of Pran Food Ltd. Has just arrived from Asia bank. The following information is available for reconciling the bank statement of apex food ltd. On May 31,2016

I. Bank balance is tk. 15000 on May 31, 2016 and Pran’s cash account shows a balance of tk. 20000 on may 31, 2016.

II. Notes collected by the bank tk. 6,000 and interest on bank deposit tk.1000 were not recorded in cash book.

III. Share refund warrant for tk.7000 has sent to the bank for which has no information had been reached to the company before May 31.

IV. Cash receipts not yet deposited tk.6000

V. Bank is paying the tk. 1000 to Rupali bank at the end of each month as per instruction of account holder, had not been entered in cash book.

VI. A lodgment of tk. 5000 on May 30 had not been credited by the bank.

VII. Pran Food Ltd. had brought down his opening cash book balance of tk. 5000 as a debit balance instead of as a credit balance.

VIII. Cheques outstanding as of May 31 were tk.3000.

Required: Prepare bank reconciliation statement on May 31, 2016. Give necessary journal entries to rectify the cash book.

Pran Food Ltd.Bank Reconciliation Statement

May 31,2016Bank Balance Tk. Book Balance Tk.

Bank balance (i)

Add:Deposit Outstanding (iv)Lodgment (vi)

Less:Cheques outstanding (viii)


15,000

6,0005,000

(3,000)

23,000

Book balance (i)

Add:Notes collection by bank (ii)Interest on bank deposit (ii)Share refund warrant (iii)

Less:Monthly Paying (v)Error that overstated by book balance (5000*2) (vii)


20,000

6,0001,0007,000

(1,000)(10,000)

23,000

Date Explanation REF Debit(Tk.) Credit(Tk.)Cash Notes receivable(Recorded notes collection by bank)

Cash Interest revenue(Recorded interest on bank deposit)

Cash Bank(Recorded share refund warrant)

Accounts payable Cash(Recorded monthly payment)

6,000

1,000

7,000

1,000

6,000

1,000

7,000

1,000

Pran Food Ltd. Journal

bank reconciliation

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