BANK RECONCILIATION STATEMENT

A bank reconciliation statement is a statement drawn up to verify the cash book balance of an
organisation with the bank statement sent by its bank. A bank statement is the statement of
account as kept by the bank on behalf of its customer for transaction made by the customer
through the bank. It shows lodgement into the account on the credit column and withdrawals
on the debit column while the balance in the account is shown after each lodgement or
withdrawals in the account.

REASONS FOR BANK RECONCILIATION

1. It affords the opportunity to update the cash book
2. It serves as means of correcting errors
3. Fraud can be detected and prevented
4. It enables the business to highlight errors committed by the bankers

CAUSES OF DISCREPANCIES BETWEEN CASH BOOK BALANCES AND BANK

STATEMENT
1. Unpresented cheques: These are cheques paid by the business but not yet passed to
the bank or presented for payment. This must have been credited to the cash book
while no entry is made in the bank account.
2. Uncredited cheques: These are the cheques received by the business and debited to its
cash book but have not been credited by the bank.
3. Credit Transfer or Direct Credits: This is money received by the bank directly from
the payer on behalf of the bank customer which is credited to his bank account but is
not reflected in the cash book yet.
4. Standing Order or Direct Debit: This is a written instruction to a bank by a customer
to make regular payments of a fixed sum of his account to a named payee. This is
debited by the bank but no entry is made yet in the cash book of the customer.
5. Bank Charges: This is the amount due to the bank for rending services on behalf of a
customer with a current account. This is usually debited to the bank account of the
customer.
6. Dishonoured Cheque: This is cheque not honoured by the receiving bank due to some
defects. A dishonoured cheque is usually returned to the drawer for cash payment. A
cheque may be dishonoured for the following reasons:
a. When there is insufficient funds in the account to pay the cheques
b. When there is irregular signature or no signature at all
c. When the amounts in figures and in words on the cheque do not agree (are not
the same).
d. When no date is shown on the cheque or is post dated
e. When there is alteration on the cheque and is not endorsed by the drawer.
7. Errors made by the banker or the enterprise: Errors made by the banker or the
enterprise when posting into the books of accounts may lead to over/under stating the
balances in the bank statement or in the cash book.

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PROCEDURE FOR RECONCILING THE CASH BOOK WITH THE BANK
STATEMENT
1. Remember that debit entries in the cash book are credit entries in the bank statement.
2. Ensure that the casting of the cash book as well as the bank statement is done
correctly.
3. Tick the debit entries in the cash book to the credit side in the bank statement while
you tick credit entries in the cash book to the debit in the bank statement to identify
outstanding items.
4. Check through the credit side of the cash book to identify unticked items. Any item
not ticked on this side is referred to as unpresented cheques.
5. Check through the debit side of the cash book for unticked items. Any item not ticked
on this side is either uncredited cheques or dischonoured cheques received.
Dishonoured cheques are credited to the cash book to update the cash book.
6. Check through the credit side of the bank statement for unticked items. Any item not
ticked on this side is referred to as credit transfer. This is debited to the cash book to
update the cash book.
7. Check through the debit side of the bank statement for unticked items. Any item not
ticked on this side could either be standing order or bank charges. Both items must be
credited to the cash book to update the cash book.

ACCOUNTING PROCEDURES FOR BANK RECONCILIATION STATEMENT

Most examination questions will require candidates to:
1. Bring the cash book up to date or prepare an adjusted cash book
2. Prepare a bank reconciliation statement

The adjusted cash book preparation involves starting a new cash book with the current
balance carried down in the cash book and write back all items unticked in the bank
statement.

Items used to adjust the cash book include:

i. Bank charges
ii. Standing order
iii. Credit transfer or direct payment e.g. Dividend, Interest etc
iv. Dishonoured cheques.
v. Errors by the enterprise

After this, the bank reconciliation statement is prepared with mainly the following;
i. Uncredited cheques
ii. Unpresented cheques
iii. Errors in the Bank Statement by the banker.

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FORMAT OF BANK RECONCILIATION STATEMENT

ENIRAYETAN ENTERPRISES
Bank reconciliation statement as at 31st December 2019
N
Balance as per Bank Statement X
Add uncredited cheques X
XX
Deduct unpresented cheques (X)
XX
Add/deduct bank error X/(X)
Balance as per Adjusted Cash book XX

N.B: Errors made by the bank may be addition or deduction depending on the type of error
and its effect on the balance on the bank statement.

OR

ENIRAYETAN ENTERPRISES
Bank reconciliation statement as at 31st December 2003
N
Balance as per adjusted cash book X
Add unpresented cheques X
X
Deduct uncredited cheques (X)
XX
Deduct/add (x)/x
Balance as per Bank statement XX

Illustration 5
On 31st October 2019, the cashbook of Ade Badmus, a trader showed a balance of N54,600
(overdraw) while his bank statement showed a balance in favour of N14,900. It was
discovered that the following transactions were responsible for the discrepancies between the
two balances:
a. Cheque issued amounting to N65,900 had not been presented for payment
b. Cheque paid on 31st October 2019 amounting to N18,500 had not been credited by the
bank
c. A standing order with the bank for a N1,000 subscription to a local club was tacash
book into consideration
d. Bank charges of N2,900 were debited by the bank but not shown in the cashbook
e. A customer, G. Abubakar, had paid the sum of N26,000 directly into the trader’s bank
account by credit transfer. The trader has been notified of this

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You are required to prepare adjusted cashbook and a bank reconciliation statement as at 31 st
October, 2019 to reconcile the two balances

Solution to Illustration 5

Ade Badmus
Adjusted Cash book
Particulars N Particulars N
Direct transfer 26,000 Balance b/d 54,600
Balance c/d 32,500 Standing order 1,000
______ Bank charges 2,900
58,500 58,500
Balance b/d 32,500

Ade Badmus
Bank Reconciliation Statement as at 31 October, 2019
N
Balance as per bank statement 14,900
Add uncredited cheque 18,500
33,400
Less unpresented cheque 65,900
Balance as per adjusted cash book (32,500)

Ade Badmus
Bank Reconciliation Statement as at 31 October, 2019
N
Balance as per adjusted cash book (32,500)
Add unpresented cheque 65,900
33,400
Less uncredired cheque 18,500
Balance as per bank statement 14,900

NOTE
 The balance b/d on the adjusted cash book was credited because it’s an overdraft.
 Remember that all income are debited to the cash book while expenses are credited
 All expenses debited in the bank statement but not in the cash book are credited to the
adjusted cash book as expenses
 Direct payment to the bank by G, Abubakar was debited to the adjusted cash book
because it’s an income

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Illustration 6
The following bank account statement relate to the firm of Gorimapa and Sons for the period
ending 30th September, 2020.
Bank Account
Date Particulars N Date Particulars N
2020 2020
Sept. 1 Balance b/f 12,000 Sept. 2 Cheque (Osakwe) 800
3 Cash 1,000 4 Cheque (Iyegude) 300
5 Cheque (Subuloye) 170 6 Cheque (Ngigie) 210
7 Cheque (Akeju) 440 8 Cheque (Akintola) 730
9 Cheque (Odubiyi) 310 10 Cheque (Kabiru) 2,240
11 Cheque (Timaya) 720 12 Balance c/d 10,360
14,640 14,640

Bank Statement as at 30th September, 2020

DR. CR. Balance
N N N
September 1 Balance 12,000
2 Cheque No. 88855 800 11,200
3 Cash 1,000 12,200
4 Charges 140 12,060
5 Cheque deposits 170 12,230
6 Cheque No. 88856 300 11,930
7 Cheque No. 88856 300 11,630
7 Cheque deposit 440 12,070
8 Cheque Deposit by Oyelola 1,200 13,270
9 Cheque dishonoured 170 13,100
11 Standing order (Insurance Premium) 1,120 11,980
12 Cheque No. 88857 210 11,770

You are required to:

a. Effect the necessary adjustments to the bank account and find the amended balance
b. Prepare a bank reconciliation statement.

Solution to Illustration 6

Gorimapa & Sons

Adjusted cash Book
Particulars N Particulars N
Balance b/d 10,360 Bank charges 140
Credit transfer 1,200 Dishonoured cheque 170
Standing order 1.120
______ Balance c/d 10,130
11,560 11,560
Balance b/d 10,130

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 Gorimapa & Sons
Bank Reconciliation Statement as at 31 September 2020
N N
Balance as per bank statement 11,770
Add Uncredited Cheques:
Odubiyi 310
Timaya 720
1,030
12,800
Less Unpresented Cheques:
Akintola 730
Kabiru 2,240
2,970
9,830
Add bank error 300
Balance as per adjusted cash book 10,130

NOTES

 The balance b/d in the adjusted cash book is a debit balance because all balance c/d
are brought down on the opposite side as balance b/d
 The bank column of double or three column cash book is called bank account
 The opening balance in the bank account is the same with the opening balance in the
bank statement. If not it should be reconciled before proceeding to the current month
reconciliation
 All the figures bolded on the debit side of the bank account were not on the credit side
of the bank statement. They were cheques paid to the bank but not yet credited by the
bank to the customer’s account. Therefore, they are added to the bank balance
 All the figures bolded on the credit side of the bank account were not on the debit side
of the bank statement. They are cheques issued by the business but not yet presented
to the bank for payment. Therefore, they are deducted from the bank balance
 Also, all the figures bolded, except the N300, on the debit side of the bank statement
were not on the credit side of the bank account. They are posted to the credit side of
the adjusted cash book with their narration s as stated in the bank statement
 The N300 was debited twice by the bank. You will notice that it has the same cheque
number as the one paid on the 6th. Therefore, it can be tagged a bank error. To correct
such, it was added to the bank balance
 The only item on the credit side of the bank statement not on the debit side of the
bank account is N1,200. It is a direct payment to the bank by a customer of the
business. It is debited to the adjusted cash book to increase the balance
 The balance as per bank statement is the closing balance

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Practice Question 1
Mr. G.A. Ken maintains a current account No. 000023456 with Boris Bank Ltd. The balance on
the account as at 31/12/2018 was N155,000 credit.

Mr. Ken’s transaction with the bank in the month of January 2019 were as follows
i. N10,000 cash deposited on 2/1/2019
ii. A cheques of N25,000 issued to Mr. Ken by one of his debtors was lodged into
his bank account on 6/1/2019
iii. He drew a ‘cash’ cheque number 000062 for N40,000 on 7/1/2019. The cheque
was presented to the bank and payment received on that date
iv. He issued a cheque No. 000063 for N50,000 to one of his creditors, Mr. S.O.
Dada on 10/1/2019. Mr Dada presented the cheque to Boris Bank Ltd. on
13/1/2019 and received payment.
v. Received cheques worth N220,000 from various customers and lodged them
into the account on 14/1/2019. All cheques matured for credit to the account on
19/1/2019.
vi. There was a standing agreement between the bank and Mr. Ken that his
monthly life assurance premium of N21,500 should be paid directly to the
insurance company by the bank. The bank remitted this on 25/1/2019.
vii. On 31/1/2019 Boris Bank Ltd. debited Mr. Ken’s account with a service charge
of N4,200

You are required to prepare a statement as it would have been prepared by Boris Bank
Ltd. reflecting the above transactions.

Practice Question 2
On 31st December 2020, Uncle Owolabi’s cash book showed a debit balance of N59,500 in the
bank account. The bank statement on the same date showed a credit balance of N108,000.
On comparing the cash book with the bank statement the following differences were
discovered:
i. Cheque for N15,500 had been paid into the bank on 31 st December, 2020 but was not
credited by the bank until the following day;
ii. Cheque for N57,000 had been drawn but not yet presented for payment;
iii. Bank charges of N8,000 appeared on the bank statement but not in the cash book
iv. A standing order for N5,000 to the Trade Protection Society payable on the 24
December had been paid by the bank but not entered in the cash book;
v. Dividends of N20,000 collected and credited by the bank did not appear in the cash
book.

You are required to:

a. Adjust the cash book
b. Prepare a bank reconciliation statement as at 31 st December, 2020

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Practice Question 3
The following is the summary from the cash book of Otunba Daniel Enterprises for October
2019
Cash Book
N N
Balance b/d 140,700 Payments 1,552,000
receipts 1,507,300 Balance 96,000
1,648,000 1,648,000

On investigation, you discovered the following:

a. Bank charges of N3,500 shown on the bank statement have not been entered in the
cashbook
b. A cheque for N1,800 had been returned by the bank marked “refer to Drawer”, but it
has not been written back in the cashbook
c. A cheque drawn for N4,700 has been entered in error as a receipt
d. An error of transposition has occurred in that the opening balance in the cashbook
should have been carried down as N147,000 instead of N140,700 as shown in the
cashbook
e. Three cheques paid to suppliers for N21,400, N37,000 and N3,000 have not yet been
presented to the bank
f. The last page of the paying-in-book shows a deposit of N154,200 which had not yet
been credited to the account by the bank
g. The bank has debited a cheque for N7,200 in error to the company’s account
h. The bank statement shows an overdrawn balance of N12,400

You are required to;

i. Show the adjustments you would make in the cashbook and
ii. Prepare a bank reconciliation statement as at 31st October, 2019.