Learning Objectives

Explain the functions of a bank Explain the functions of a bank reconciliation statementreconciliation statement

Explain the causes of differences of the Explain the causes of differences of the balance of the cash book and balance in the balance of the cash book and balance in the bank statementbank statement

Update cash bookUpdate cash book Prepare a bank reconciliation statementPrepare a bank reconciliation statement

Methods of Payment and Receipt

Cheques receiptCheques receipt Bank interest incomeBank interest income Credit transfer (C/T)Credit transfer (C/T)

Cheques paymentCheques payment Bank chargesBank charges Interest chargesInterest charges Standing order (S/O)Standing order (S/O) Direct debit (D/D) or Direct debit (D/D) or

AutopayAutopay

Payment by Bank

Standing Order is the Standing Order is the instruction given by instruction given by the depositor to the the depositor to the bank to make bank to make regular regular paymentpayment with a with a fixed fixed amountamount to a to a specific specific personperson automatically automatically from the depositor’s from the depositor’s bank account.bank account.

Direct debit or autopay is Direct debit or autopay is the instruction given by the instruction given by the depositor to his / her the depositor to his / her creditor’s bank to collect creditor’s bank to collect the money with a the money with a variable variable amountamount directly from the directly from the depositor’s bank account depositor’s bank account from time to timefrom time to time..

Record Transactions

Cash BookCash Book

Receipt / DepositReceipt / Deposit

- Dr.- Dr.

(increase in asset)(increase in asset) Payment / WithdrawalPayment / Withdrawal

- Cr.- Cr.

(decrease in asset)(decrease in asset)

Bank StatementBank Statement

DepositDeposit

- Cr. - Cr.

(increase in liability)(increase in liability) WithdrawalWithdrawal

- Dr. - Dr.

(decrease in liability)(decrease in liability)

Cheque

Post-dated chequePost-dated cheque Stale chequeStale cheque Dishonoured chequeDishonoured cheque Unpresented chequeUnpresented cheque Uncredited cheque / Uncredited depositUncredited cheque / Uncredited deposit

Dishonoured Cheques

Cheques which cannot be converted as money Cheques which cannot be converted as money when presented at the bankwhen presented at the bank

Possible reasons: Refer to drawer / Post-dated / Possible reasons: Refer to drawer / Post-dated / Insufficient fundInsufficient fund

Unpresented Cheques

They have not been presented to the bank for They have not been presented to the bank for money.money.

Stale cheques are cheques not presented for more Stale cheques are cheques not presented for more than six months from the date of issue. than six months from the date of issue.

Reasons for Differences

Time differences in recordingTime differences in recording

Errors occurred on the Bank account of the Errors occurred on the Bank account of the Cash Book and / or the Bank StatementCash Book and / or the Bank Statement

Bank Reconciliation Statement

Bank Reconciliation Statement

It ensures the users the difference between the balance in bank statement and the balance in cash book can be justified with reasons.

Items in Bank Reconciliation StatementCash BookCash Book Bank Bank

StatementStatement

Dr.Dr. Cr.Cr. Dr.Dr. Cr.Cr.

Unpresented chequesUnpresented cheques

Uncredited depositsUncredited deposits

Error on cash bookError on cash book

Bank chargesBank charges

Standing order/direct debitStanding order/direct debit

Dishonoured chequesDishonoured cheques

Items in Bank Reconciliation StatementCash BookCash Book Bank Bank

StatementStatement

Dr.Dr. Cr.Cr. Dr.Dr. Cr.Cr.

Post-dated chequesPost-dated cheques

Stale chequesStale cheques

Credit transferCredit transfer

Error on bank statementError on bank statement

Preparation of a bank reconciliation statement Enter ALL adjustments in the bank Enter ALL adjustments in the bank

reconciliation statementreconciliation statement

Update cash book as well as prepare a bank Update cash book as well as prepare a bank reconciliation statementreconciliation statement