Bank Reconciliation StatementsCambridge IGCSE Accounting (10th Grade)Chapter 14, pages 207 - 221

Objectives

Understand the purpose of bank reconciliation Understand why the bank account may not agree with the bank

statement Understand the stages of bank reconciliation Upate the cash book Prepare a bank reconciliation statement Understand the advantages of bank reconciliation

Bank Statement Is a document prepared and sent by the bank at regular intervals to its

customers It shows in detail all the transactions that have taken place during the

period covered by the statement Is a copy of the customer´s account in the books of the bank When money is paid into the bank the customer´s account will be

credited as this is the amount owed by the bank to the customer When money is taken out of the bank, the customer´s account will be

debited as this reduces the amount owed by the bank to the customer A positive bank balance will appear as a credit balance and an

overdrawn balance as a debit balance

Reconciliation

It is the comparison of the bank statement and the bank account in the cash book

If the two balances disagree, it is necessary to reconcile them to explain why the differences have arisen

Reasons why the bank account and the bank statement may differ The different times at which the same ítems are recorded The business not recording certain ítems in the cash book

Timing Differences

Cheques not yet presented These are cheques that have been paid by the business and entered on the credit of the cash book, but which do not appear on the bank statement.

Amounts not yet credited These are cash and cheques that have been paid into the bank and entered on the debit side of the cash book, buth which do not appear on the bank statement. It usually takes a few days before the money paid into the bank is recorded in the customer´s account

Items not recorded in the cash book

It often happens that the business does not record certain ítems until the bankStatement is received. These include: Bank charges and bank interests Dishonoured cheques Amounts paid directly into the bank (credit transfers, standing orders

and direct debits) Amounts paid directly by the bank to others (credit transfers, standing

orders and direct debits)

Other differences

Errors made by the business Errors made by the bank

Differences between the bank account in the cash book and the bank statement are summarised as follows:

Items in Cash Booknot in Bank Statement

Items in Bank Statementbut not in Cash Book

Cheques not yet presented Bank charges and bank interestsAmounts not yet credited Dishonoured cheques

Errors in cash book Standing ordersCredit transfersDirect Debits

Errors on bank statement

Stages in Bank Reconciliation

1. Compare the bank account in the cash book with the bank statement 2. Update the cash book 3. Correct any errors in the cash book 4. Balance the cash book and carry down the balances 5. Prepare a bank reconciliation statement.

Stages in Bank Reconciliation

1. Compare the bank account in the cash book with the bank statement 2. Update the cash book 3. Correct any errors in the cash book 4. Balance the cash book and carry down the balances 5. Prepare a bank reconciliation statement.

Stages in Bank Reconciliation

1. Compare the bank account in the cash book with the bank statement 2. Update the cash book 3. Correct any errors in the cash book 4. Balance the cash book and carry down the balances 5. Prepare a bank reconciliation statement.

Stages in Bank Reconciliation

1. Compare the bank account in the cash book with the bank statement 2. Update the cash book 3. Correct any errors in the cash book 4. Balance the cash book and carry down the balances 5. Prepare a bank reconciliation statement.

This amount was CREDITED in the BANK STATEMENTbut it was not recorded in the CASH BOOK

This amount was CREDITED in the BANK STATEMENTbut it was not recorded in the CASH BOOK

This amount was CREDITED in the CASH BOOK as $234but it was DEBITED in the BANK STATEMENT as $243 ($9 difference)

This amount was CREDITED in the CASH BOOK as $234but it was DEBITED in the BANK STATEMENT as $243 ($9 difference)

This amount was DEBITED in the BANK STATEMENTbut it was not recorded in the CASH BOOK

This amount was DEBITED in the BANK STATEMENTbut it was not recorded in the CASH BOOK

BALANCE THE CASH BOOK WITH A BALANCE C/DAND BRING DOWN WITH A BALANCE B/D

BALANCE THE CASH BOOK WITH A BALANCE C/DAND BRING DOWN WITH A BALANCE B/D

PRACTICE EXERCISE

SOLVE REVIEW QUESTIONS 1, PAGE 217

DATE DETAILS F DISCOUNT

ALLOWED

CASH BANK DATE DETAILS F DISCOUNT

RECEIVED

CASH BANK

CASH BOOK

VERY GOOD!!

READY FOR QUIZ