By Nancy Keong

Content

- The purpose of the bank reconciliation statement.

- The definition of the bank reconciliation statement.

- Nature of the cash book and the bank statement.

- Reasons for difference between the cash book and the bank statement.

- Drawing up a bank reconciliation statement.

- Example

- Exercise

• Due to the timing difference,omissions and errors made by the bank or the firm itself,the balances of the bank statement and the bank account in the cash book rarely agree.

• Bank reconciliation statements can be used to explain the reasons for the differences and to identify errors and omissions in both documents,so that corrections can be made as soon as possible.

1.1. THE PURPOSE OF THE BANK THE PURPOSE OF THE BANK RECONCILIATION STATEMENTRECONCILIATION STATEMENT

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• The bank balances as shown in the cash book and the bank statement seldom agree.There are various reasons for this.A statement is used to reconcile the two balances.

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2.2. THE DEFINITION OF THE BANK RECTHE DEFINITION OF THE BANK RECONCILIATION STATEMENTONCILIATION STATEMENT

• Uncredited items– They are deposits paid into the bank.These it

ems occurred too close to the cut-off date of the bank statement and so do not appear on the statement.They will appear on the next statement.

3.3. REASONS FOR DIFFERENCES BETWEREASONS FOR DIFFERENCES BETWEEN THE CASH BOOK AND THE BANK STEN THE CASH BOOK AND THE BANK STATEMENT. ATEMENT.

• Unpresented cheques– They are cheques issued by the firm that hav

e not yet been presented to its bank for payment.

• Standing orders– They are standing instructions from the firm

to the bank to make regular payments.

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• Direct debits– They are payments made directly through

the bank.

• Bank charges– They are charges made by the bank to the

company for banking services used.

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• Dishonoured cheques– They are cheques deposited but subsequently

returned by the bank due to the failure of the drawer to pay.

• Credit transfers/direct credits– They are collections from customers directly

through the bank.

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• Interest allowed by the bank – They are interest received for deposits or

fixed deposits.

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

Cash book

(A credit represents a decrease)

(A debit represents an increase)

Next

4. NATURE OF THE CASH BOOK AND TH4. NATURE OF THE CASH BOOK AND THE BANK STATEMENT.E BANK STATEMENT.

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

(represents the amount owed to the clients)

Bank statement

Cr.

(represents increases)

Dr.

(represents decreases)

Balance

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• To reconcile the bank statement with the corrected cash book

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

Update the cash book with any omissions and errors made by the itself.

Prepare the bank reconciliation statement.

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5. DRAWING UP A BANK RECONCILIATI5. DRAWING UP A BANK RECONCILIATION STATEMENTON STATEMENT

A company’s cash book and bank statement for December 1996 appear as follows:

Cash Book(bank column)

1996 $

Dec 1 Balance b/d 2800

3 W.Lee 1000

10 T.Cheung 2000

30 S.Sin 1400

7200

1996 $

Dec 8 K.Wong 1600

20 C.Kwok 700

29 M.Tang 100

31 Balance c/d 4800

7200

Bank Statement Dr Cr Balance

1996 $ $ $

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 charge 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 1570Back

Cash Book(bank column)

1996 $

Dec 1 Balance b/d 2800

3 W.Lee * 1000

10 T.Cheung * 2000

30 S.Sin 1400

7200

1996 $

Dec 8 K.Wong * 1600

20 C.Kwok * 700

29 M.Tang 100

31 Balance c/d 4800

7200

“*” are those appear both in the cash book and the bank statement.

Uncredited item Unpresented cheque

Back

Bank Statement Dr Cr Balance

1996 $ $ $

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 charge 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 1570Direct debit Bank charge Back

Cash Book(bank column)

1996 $

Dec 31 Balance b/d 4800

31 Commission

Received 300

31 Bank interest 50

5150

The corrected cash book and the bank reconciliation as at 31 December 1996 would appear as follows:

1996 $

Dec 31 T.Cheung—

Dishonoured cheque 2000

31 Bank chrges 30

31 Rent 250

31 Balance c/d 2870

5150Back

Bank Reconciliation Statement as at 31 December 1996

$

Corrected balance in hand as per cash book 2870

Add Unpresented cheque 100

2970

Less Bank deposit not yet entered on bank statement 1400

Balance in hand as per Bank Statement 1570

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The following are extracts from the cash book and the bank statement 2000,and you are required to:

(a)Write the cash book up to date,and the new balance as on 31 December 2000,and

(b) Draw up a bank reconciliation as on 31 December 2000.

Cash Book

2000 $

Dec 1 Balance b/d 1740

7 T Ma 88

22 J Li 73

31 K Woo 249

31 M Poon 178

2328

2000 $

Dec 8 A Dai 349

15 R Sun 33

28 G So 115

31 Balance c/d 1831

2328

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Bank Statement2000 Dr Cr Balance

$ $ $

Dec 1 Balance b/f 1740

7 Cheque 88 1828

11 A Dai 349 1479

20 R Sun 33 1446

22 Cheque 73 1519

31 Credit transfer:J Wong 54 1573

31 Bank charges 22 1551

Back

Cash Book2000 $

Dec 31 Balance b/d 1831

31 J.Wong 54

1885

2000 $

Dec 31 Bank charges 22

31 Balance c/d 1863

1885

Back

Bank Reconciliation Statement as on 31 December 2000

$

Balance per cash book 1863

Add Unpresented cheque 115

1978

Less Bankings not yet on bank statement

(249+178) 427

Balance per bank statement 1551

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