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04 Bank Reconciliation Statements
04 Bank Reconciliation Statements
Notes to teachers
1 Start with Chapter 4 of Frank Wood’s Introduction to Accounting and briefly explain to students the
basic principles of recording in the cash book.
2 It is necessary to show a (real or simulated) bank statement to students as most of them would probably
have no idea of what one looks like.
3 Most students have difficulty understanding why a debit bank balance appearing in the cash book
represents a positive balance while a debit bank balance appearing in the bank statement represents a
negative (overdraft) balance. Teachers must clarify a bank deposit from the perspectives of the business
and the bank (whether it is treated as an asset or a liability).
4 Most students have the misconception that a bank reconciliation statement is used to make corrections in
the cash book and/or the bank statement. Teachers must clarify that the bank reconciliation statement is
simply used to show the difference between the bank balances of the cash book and the bank statement.
By so doing, a bank reconciliation statement can help spot errors in the cash book or the bank statement.
5 Most students have difficulty understanding why unpresented cheques and uncredited cheques are added
to and deducted from the cash book balance, respectively, in arriving at the bank statement balance.
Teachers should tell them the purpose is to reconcile both balances. The calculation would be reversed if
it starts with the bank statement balance and ends with the cash book balance.
6 The treatment of bank errors is the most difficult task. Teachers should spend more time demonstrating
how they should be shown on the bank reconciliation statement and explaining the general principle
behind this.
7 In public examinations, this topic is usually combined with other topics in a long question, most probably
the correction of errors, which will be taught in Chapter 6.
Q1 A bank overdraft occurs when a firm withdraws more money than it has in its bank account. As a result,
the balance at the bank will become negative.
Q2 A standing order is an instruction given by a bank customer to his bank to pay a fixed sum of money from
his account to a named beneficiary (payee) at regular intervals.
Example: A fixed amount of money is automatically transferred out of one’s bank account to pay property
management fees on a fixed date each month.
A direct debit is an authority given by the customer to a named payee to claim payments from the
customer’s bank account and an instruction to his bank to allow the payments to go through. It does not
specify the payment amount or the payment date.
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Q4 A bank reconciliation statement is prepared at the end of a period in order to show the reasons for the
difference between the bank balances of the cash book and the bank statement.
Q5 Yes.
A bank reconciliation statement shows the reasons for the difference between the bank balances of the
cash book and the bank statement. The reasons may be errors and omissions made in the cash book or
the bank statement. So the preparation of a bank reconciliation statement can help to detect and correct
errors.
Q6 D Yuen
Bank Reconciliation Statement as at 30 November 2009
$ $
Overdraft balance as per cash book (3,780)
Add Unpresented cheque 630
Credit transfer 1,240 1,870
(1,910)
Less Uncredited cheque 1,060
Standing order 770
Bank charges 490 (2,320)
Overdraft balance as per bank statement (4,230)
Q7 (a) M Cheng
Bank Reconciliation Statement as at 31 March 2010
$ $
Balance as per bank statement 161,800
Add Bank lodgement not yet entered on bank statement 11,500
Bank error — Service fee overcharged 1,800 13,300
175,100
Less Unpresented cheque (16,400)
Adjusted balance as per cash book 158,700
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A2 When a firm keeps money in the bank, it is the same as the firm lending money to the bank. Therefore,
the firm’s positive bank balance is treated as a liability by the bank and not an asset.
ASSESSMENT
Short Questions
1 (a) Cash Book
2009 $ 2009 $
Jun 30 Balance b/d 2,833 Jun 30 Union Credit — Standing order 44
" 30 RS Ltd — Credit transfer 90 " 30 Bank charges 70
" 30 Balance c/d 2,809
2,923 2,923
(b) C Chan
Bank Reconciliation Statement as at 30 June 2009
$
Corrected balance as per cash book 2,809
Add Unpresented cheque 57
2,866
Less Uncredited cheque (624)
Balance as per bank statement 2,242
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(b) C Hung
Bank Reconciliation Statement as at 31 December 2008
$
Corrected overdraft balance as per cash book (4,007)
Add Unpresented cheque 84
(3,923)
Less Uncredited cheque (211)
Overdraft balance as per bank statement (4,134)
(b) K Woo
Bank Reconciliation Statement as at 31 March 2009
$
Overdraft as per corrected cash book (5,300)
Add Unpresented cheque 490
(4,810)
Less Uncredited cheque (160)
Overdraft as per bank statement (4,970)
(b) DD Ltd
Bank Reconciliation Statement as at 31 May 2009
$
Adjusted balance as per cash book 151,690
Add Unpresented cheques ($2,790 + $16,270) 19,060
170,750
Less Uncredited deposit (29,140)
Balance as per bank statement 141,610
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(b) K Tang
Bank Reconciliation Statement as at 31 December 2009
$
Corrected balance as per cash book 9,300
Add Unpresented cheques ($750 + $870) 1,620
10,920
Less Uncredited cheque (2,070)
Balance as per bank statement 8,850
Application Problems
6 (a) Cash Book
2010 $ 2010 $
Apr 30 Balance b/d 53,000 Apr 30 Bank charges (i) 150
" 30 Cheque wrongly recorded on " 30 Rent — Standing order (ii) 20,000
credit side ($6,200 × 2) (iv) 12,400 " 30 Debtor — Dishonoured cheque (iii) 3,560
" 30 Credit transfer (v) 5,800 " 30 Balance c/d 48,680
" 30 Dividend revenue (vii) 1,190
72,390 72,390
or Panda Club
Bank Reconciliation Statement as at 30 April 2010
$
Balance as per bank statement 51,780
Less Loan interest undercharged (vi) (2,400)
Unpresented cheque (viii) (700)
Corrected balance as per cash book 48,680
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(b) Anne Lo
Bank Reconciliation Statement as at 31 March 2010
$
Balance as per bank statement 91,600
Add Uncredited cheque (vii) 8,744
100,344
Less Unpresented cheques (i) (4,860)
Corrected balance as per cash book 95,484
(c) In Hong Kong, when a cheque is deposited into the bank, it takes at least one full working day for the
cheque to clear. As the cheque was deposited on 31 March 2010, it would only be cashed in early
April 2010. Thus, it did not appear on the bank statement for the month ended 31 March 2010.
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or
Bank Reconciliation Statement as at 31 December 2010
$
Balance as per bank statement 139,419
Add Overdraft interest wrongly charged (vii) 840
140,259
Less Unpresented cheques (i) (1,050)
Corrected balance as per cash book 139,209
(b) B Mok
Bank Reconciliation Statement as at 31 May 2010
$
Adjusted balance as per cash book 2,313
Add Unpresented cheque (vi) 237
2,550
Less Uncredited cheque (iii) (555)
Balance as per bank statement 1,995
11X (a) No. A bank reconciliation statement is prepared to explain the difference between the bank balances
of the cash book and the bank statement.
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(iii) The bank balance to be shown in the balance sheet as at 31 March 2009 would be $24,275
(overdraft).
(b) Amy Ko
Bank Reconciliation Statement as at 28 February 2009
$ $
Balance as per bank statement 1,429
Add Uncredited item 2,000
3,429
Less Unpresented cheques:
Telephone (No. 4149) 106
Wages (No. 4152) 750 (856)
Corrected balance as per cash book 2,573
Jacob Co
2009 $ 2009 $
Feb 1 Balance b/d 719 Feb 24 Bank 350
" 28 Bank — Dishonoured cheque 350 " 28 Balance c/d 719
1,069 1,069
13X (i) Bank receipts and payments should be recorded in the cash book on the dates that they are made.
This is the time when the corresponding liability is settled. For example, a cheque payment should be
recorded when the cheque is drawn and not when it is presented to the bank. Making entries on the
basis of the bank statement could miss some cheques that have been drawn but have not been
presented during the period.
(ii) These items are usually debited or credited automatically to the bank account without prior
notification. The account holder can only ascertain these items upon receiving the bank statement.
(iii) Actually, these cheques or deposits were recorded in the cash book when they were drawn or made.
Adjustments for such items are just for the purpose of explaining the difference between the bank
balances of the cash book and the bank statement.
(iv) As explained in part (i), bank receipts and payments should be recorded in the cash book when they
are made. So the bank balance shown in the balance sheet should be the adjusted balance of the cash
book.
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