bank reconciliation statements chapter 8 © luby & o’donoghue (2005)

Bank Reconciliation Bank Reconciliation StatementsStatements

Chapter 8Chapter 8

© Luby & O’Donoghue (2005)© Luby & O’Donoghue (2005)

TerminologyTerminology

Current accountCheque clearingBank overdraftDirect debitStanding orderCredit transferDishonoured chequeBank statement

Comparison of recordsComparison of records

DR Cash Book CR

Bank € Bank €

1 March Balance b/d 2,500

1 March Sales a/c 5,000

Date Transaction details Debit Credit Balance

1 March Balance Forward €2500.00

1 March Lodgement €5000.00 €7500.00

BusinessBusiness

BankBank

The need for a bank The need for a bank reconciliationreconciliation

A bank statement will be received from the bank.The balance on the bank statement should be compared with the balance on the bank account in the ledger.The two balances are not likely to be the same:

Timing differencesItems on the statement not in the ledger accountsErrors

A reconciliation is carried out to verify that the balances are correct.

Reasons for differencesReasons for differences

Items that are in the bank statement but are not in the cash book

Automatic payments through the banking systemBank chargesDishonoured cheques

Items that are recorded in the cash book but not appearing in the bank statement

Un-presented chequesUn-cleared lodgements

ApproachApproach

Step 1Step 1 Each item in the bank statement needs to be traced to

the cash book in order to identify all items that appear in the bank statement but are not in the cash book. All such items should then be entered in the cash book and a new updated balance calculated.

Step 2Step 2 Each item in the cash book should be traced to the bank

statement so as to identify bank deposits and cheques drawn that are not appearing on the bank’s statement because the former are awaiting clearance and the latter are yet to be presented to the bank for payment. The bank reconciliation would look as follows.

Bank reconciliation statementBank reconciliation statement

Bank Reconciliation StatementBalance per bank statement xxx

Add: Lodgements not on statement xxx

Less: Unpresented cheques (xxx)

Balance per corrected cash book xxx

You are required to 1. Update the cash book 2. Prepare the bank

reconciliation statement

Example 1Example 1 Cash Book

1 Aug Balance 1,200 5 Aug Cheque 201 525

10 Aug Lodgement 25 150 12 Aug Cheque 202 750

22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250

25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260

31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150

31 Aug Balance c/d 890

4,825 4,825

31-Aug Balance b/d 890

Date Particulars Debit Credit Balance

1 Aug Balance 1,200

6 Aug Cheque 201 525 675

11 Aug Lodgement 25 150 825

12 Aug Cheque 202 750 75


26 Aug Lodgement 27 1,500 1,800

25 Aug Cheque 203 1,250 550

26 Aug Cheque 204 260 290

31 Aug Direct Debit (Ins) 125 165

31 Aug Bank Charges 50 115

Preliminary workCompare and match each item on the bank statement with the cash book

Cash Book







4,825 4,825



1 Aug Balance 1,200

6 Aug Cheque 201 525 675


12 Aug Cheque 202 750 75


26 Aug Lodgement 27 1,500 1,800

25 Aug Cheque 203 1,250 550

26 Aug Cheque 204 260 290

31 Aug Direct Debit (Ins) 125 165


Identify items on the bank statement omitted from the cash book and any errors made

Cash Book







4,825 4,825



1 Aug Balance 1,200

6 Aug Cheque 201 525 675


12 Aug Cheque 202 750 75


26 Aug Lodgement 27 1,500 1,800

25 Aug Cheque 203 1,250 550

26 Aug Cheque 204 260 290

31 AugDirect Debit (Ins) 125 165


Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found

Cash Book

1 Sept Balance b/d 890 1 Sept Direct debit 125

1 Sept Bank charges 50

1 Sept Balance c/d 715

890 890

1 Sept Balance b/d 715

This is part 1 of question answeredThis is part 1 of question answered

Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation

Cash Book







4,825 4,825


Bank Reconciliation

Balance as per bank statement 115

Add outstanding lodgements

Lodgement number 28 1,750

Less un-presented cheques

Cheque number 205 (1,150)

Balance as per cash book (corrected) 715

Part 2 of Part 2 of question question answeredanswered

Cash Book1-Jan Balance 3,560 5-Jan Cheque 3050 225

10-Jan Lodgement 104 890 12-Jan Cheque 3051 19522-Jan Lodgement 105 720 21-Jan Cheque 3052 2,10025-Jan Lodgement 106 3,110 26-Jan Cheque 3053 18031-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250

31-Jan Balance c/d 3,5298,479 8,479

31-Jan Balance b/d 3,529


1-JanBalanceCheque 3048

5,130

4-Jan 1,120 4,010

5-Jan Cheque 3050 225 3,785

6-Jan Cheque 3049 450 3,335

11-Jan Lodgement 104 890 4,225

12-Jan Cheque 3051 195 4,030


26-Jan Lodgement 106 3,210 7,960

26-Jan Cheque 3052 2,100 5,860

28-Jan Cheque 3053 180 5,680

31-Jan31-Jan

Direct Debit 175 5,505

Bank Charges 75 5,430

Example 2Example 2



Opening balances disagree


Cash Book

1-Jan Balance 3,560 5-Jan Cheque 3050 225

10-Jan Lodgement 104 890 12-Jan Cheque 3051 195

22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100

25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180


31-Jan Balance c/d 3,529

8,479 8,479




5,130

4-Jan 1,120 4,010

5-Jan Cheque 3050 225 3,785

6-Jan Cheque 3049 450 3,335


12-Jan Cheque 3051 195 4,030


26-Jan Lodgement 106 3,210 7,960

26-Jan Cheque 3052 2,100 5,860

28-Jan Cheque 3053 180 5,680

31-Jan31-Jan



As the opening balances disagree, you need to identify items relating to last month and reconcile opening balances


1-Jan Balance

Cheque 3048

5,130

4-Jan 1,120 4,010

5-Jan Cheque 3050 225 3,785

6-Jan Cheque 3049 450 3,335


12-Jan Cheque 3051 195 4,030


26-Jan Lodgement 106 3,210 7,960

26-Jan Cheque 3052 2,100 5,860

28-Jan Cheque 3053 180 5,680

31-Jan31-Jan



Opening reconciliation

€

Opening balance statement 5,130

Add unpresented cheques (1,120 + 450) 1,570

Opening balance cash book 3,560


Cash Book







8,479 8,479




5,130

4-Jan 1,120 4,010

5-Jan Cheque 3050 225 3,785

6-Jan Cheque 3049 450 3,335


12-Jan Cheque 3051 195 4,030


26-Jan Lodgement 106 3,210 7,960

26-Jan Cheque 3052 2,100 5,860

28-Jan Cheque 3053 180 5,680

31-Jan31-Jan



ErrorError€€100 100 short short in cash in cash bookbook


Cash Book

31-Jan Balance b/d 3,529 31-Jan Direct Debit 175

31-Jan Correction to 31-Jan Bank charges 75

Lodgement 106 100 31-Jan Balance c/d 3,379

3,629 3,629



Cash Book







8,479 8,479


Bank Reconciliation Statement

€

Balance as per bank statement 5,430

Add outstanding lodgements

Lodgement 107 199

Less un-presented cheques

Cheque 3054 (2,250)

Balance as per cash book (corrected) 3,379

Example 3Example 3Cash Book

1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37

23 Feb Cheque 19567 340

10,900 10,900

1 Mar Balance b/d 400Bank Statement

Date Debit Credit Balance

1 Feb Opening balance 500

5 Feb Cheque 19562 3,380 (2,880)

7 Feb Lodgement 715 2,230 (650)

8 Feb Bank interest 13 (637)

9 Feb Cheque 19561 45 (682)

14 Feb Lodgement 716 3,100 2,418

19 Feb DD Telecom 225 2,193

19 Feb Cheque 19564 4,220 (2,027)

22 Feb Lodgement 717 1,770 (257)

24 Feb Dishonoured cheque 98 (355)

25 Feb Cheque 19563 290 (645)

25 Feb Cheque 19565 1,680 (2,325)

28 Feb Bank charges 39 (2,364)




Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37

23 Feb Cheque 19567 340

10,900 10,900




5 Feb Cheque 19562 3,380 (2,880)

7 Feb Lodgement 715 2,230 (650)


9 Feb Cheque 19561 45 (682)

14 Feb Lodgement 716 3,100 2,418


19 Feb Cheque 19564 4,220 (2,027)

22 Feb Lodgement 717 1,770 (257)


25 Feb Cheque 19563 290 (645)

25 Feb Cheque 19565 1,680 (2,325)




23 Feb Cheque 19567 340

10,900 10,900




5 Feb Cheque 19562 3,380 (2,880)

7 Feb Lodgement 715 2,230 (650)


9 Feb Cheque 19561 45 (682)

14 Feb Lodgement 716 3,100 2,418


19 Feb Cheque 19564 4,220 (2,027)

22 Feb Lodgement 717 1,770 (257)


25 Feb Cheque 19563 290 (645)

25 Feb Cheque 19565 1,680 (2,325)


Error €100 overError €100 over

Error €9 overError €9 over

Error €261 shortError €261 short


Cash Book

1 Mar Error cheque 19561 9 1 Mar Balance b/d 400

1 Mar Bank interest 13 1 Mar Error cheque 19563 261

1 Mar Balance c/d 1,101 1 Mar Error lodge 717 100

1 Mar DD Telecom 225

1 Mar Dishonoured cheque 98

1 Mar Bank charges 39

1,123 1,123

1 Mar Balance b/d 1,101



23 Feb Cheque 19567 340

10,900 10,900

1 Mar Balance b/d 400

Bank Reconciliation Statement€

Balance as per bank statement (2,364)Add outstanding lodgements Lodgement 718 2,150 Lodgement 719 650 2,800Less unpresented cheques Cheque 19560 1,160 Cheque 19565 37 Cheque 19566 340 (1,537)Balance as per cash book (corrected) (1,101)

Advantages of bank Advantages of bank reconciliationsreconciliations

It confirms the accuracy of the bank figure in the

company’s records.

It can help in identifying errors and fraud within the

company.

It can help identify errors made by the bank.

Other control aspectsOther control aspects

Dealing with cash

Dealing with cheques

Dealing with debit / credit cards

bank reconciliation statements chapter 8 © luby & o’donoghue (2005)

Documents

cash book cash book

bank account

bank deposits

business bank slide

banks statement

bank overdraft direct

cash book automatic

augbalance cd890