Lecture Summary 24/2/2022

Bank reconciliation

1. Bank current account/ cheque account

2. Cheque book & bank statement

3. Cash at bank a/c balance (our ledger) may not agree with the Bank statement balance! WHY?

Cash at bank

2020 RM 2020 RM
May1 X May X
A/R; Lumberjack X X
x Balance c/d 1,234
10,250 10,250
June.1 Balance b/d 1,234

Bank statement for the month of May 2020

Date Details Debit Credit Balance

RM RM RM
May 1 XX
X Xx
X X
X X
X X
X X
31 X 900

4. Timing differences

Cash @ Bank Bank statement

1. Uncredited deposits/ lodgements +
2. Unpresented cheques (-)
3. Standing instructions (e.g. insurance premium) (-)
4. Direct debit (-)
5. Credit transfer (e.g. dividend received) +
6. Cheque book, bank charge, etc. (-)
7. Dishonoured/ returned cheque (“Refer to Drawer”) ?? ??
8. Errors in Cash at bank +/ (-)
9. Errors in Bank statement +/ (-)

5. Steps in the bank reconciliation process

i. Update the cash at bank a/c with…

the timing differences on the bank statement (3, 4, 5, 6);

the dishonoured cheque (7)

the correction of errors in the cash at bank account (8)

Lecture Summary 24/2/2022

Cash at Bank
RM RM
Sep. 1 Balance b/d XXX Sep. 9 Rent 200
25 J Simms 1,000
30 Balance c/d 3,111
XXX XXX
Sep.3 Balance b/d 3,111 Sep.30 J Simms (Dishonoured) 1,000
0
Error correction - # x Bank charges 25
Dividend - Cr Transfer 114 Insurance – S’ing order 100
Error correction - # x
Balance c/d 2,100
3,225 3,225
Oct. 1 Balance b/d 2,100

ii. Prepare the bank reconciliation statement with…

the timing differences in the cash at bank a/c (1, 2)

the correction of errors in the bank statement (9)

6. Which amount will be shown on the balance sheet for cash at bank?

# The updated balance on the cash at bank account/ the cash at bank balance shown on the bank
reconciliation statement.

Bank reconciliation statement as at …

RM RM
Balance as per bank statement 3,000
Add Uncredited deposits x
Add Bank error (if it debited in the bank statement) x X
XX
Less Unpresented cheques (x)
Less Bank error (if it credited in the bank statement) (x) X
Balance as per cash at bank account 2,100
Lecture Summary 24/2/2022

Sample Q

The Kop Enterprise received its bank statement for the month of May 2020 which shows a
different balance with the cash at bank. Following are the bank statement and cash book
(bank column) for the month of May 2020:

Cash at Bank
Date Details RM Date Details Cheque RM
No
May 1 Balance b/d 3,543 May 6 Purchases 042351 2,843/
8 Sales 946/ 11 Cole 042352 740/
10 Agger 1,325/ 14 Enrique 042353 2,655/
16 Skrtel 490/ 18 Rozel 042354 890
20 Sahin 1,254 25 Furniture 042355 1,248/
31 Balance c/d 1,333 28 Jonjo 042356 65
30 Maxis 042357 450
Wages
8,891 8,891
Jun 1 Balance b/d 1,333

RHB BERHAD
Bank Statement for May 2020
Dat Details Dr Cr Balance
e
May 1 Balance 4,043 (cr)
10 Cheque – 042351 2,843/ 1,200 (cr)
11 Deposits 946/ 2,146 (cr)
11 Deposits 1,325/ 3,471 (cr)
12 Cheque – 042350 500// 2,971 (cr)
13 Cheque – 042352 740/ 2,231 (cr)
18 Cheque – 042353 2,655/ 424 (dr)
20 Dividend 600 176 (cr)
25 Interest of fixed deposits 343 519 (cr)
28 Cheque – 042355 1,248/ 729 (dr)
28 Deposits 490/ 239 (dr)
31 Bank Charges 16 255 (dr)

You are required:

a. Update the bank account
b. Prepare a bank reconciliation statement as at 31 May 2012
c. Cheques issued by customers can be dishonored by the bank. Explain the
possible reasons for a cheque to be dishonored?
d. Bank reconciliation statements are prepared at the end of month. Explain why it
is important for a business to prepare a bank reconciliation statement.
Lecture Summary 24/2/2022

(a) Cash at bank

2020 RM 2020 RM
May 31 Dividend received 600 May 31 Balance b/d 1,333
Interest received 343 Bank charges 16
Xxx (Correction of error) x Xxx (Dishonoured) x
Balance c/d 406 Xxx (Correction of error) x
1,349 1,349
Jun. 1 Balance b/d # 406

(b) Bank reconciliation statement as at 31 May 2020

RM RM
Debit Balance as per bank statement (255)
Add Uncredited deposits 1,254
Bank error - Xxx X
999
Less Unpresented cheques:
042354 890
042356 65
042357 450 (1,405)
Bank error - Xxx (x)
Credit Balance as per cash at bank account # (406)
Lecture Summary 24/2/2022

Another PYQ

Question 4

(a)

The information is provided by Liu Rong Co at the beginning of January 2009:

On 01 January 2009, it was noted that the following cheques were still outstanding.
Cheque no. 6001 $1,000
Cheque no. 6002 $2,000
Cheque no. 6003 $3,000

The following information is extracted from the books of Liu Rong Co.

Cash at Bank Account

Date Particulars $ Date Particulars $
1/1 Balance b/d 14,000 3/1 Cheque no 6004 123
2/1 Deposit 6,600 9/1 Cheque no 6005 456
8/1 Deposit 8,800 14/1 Cheque no 6006 789
29/1 Deposit 7,700 20/1 Cheque no 6007 1,100
29/1 Deposit 7,700 23/1 Cheque no 6008 4,400
30/1 Deposit 3,000 31/1 Cheque no 6009 3,432
31/1 Deposit 5,500 31/1 Balance c/d 43,000
53,300 53,300

The Bank Statement for January 2009 below was issued by Liu Rong Co’s banker.

Liu Rong Co: Bank Statement for January 2009

Date Particulars DR $ CR $ Balance $
1/1 Balance b/d 20,000 CR
3/1 Cheque no 6002 2,000 18,000 CR
4/1 Deposit 6,600 24,600 CR
8/1 Deposit 8,800 33,400 CR
9/1 Cheque no 6005 456 32,944 CR
10/1 Cheque no 6004 123 32,821 CR
15/1 Bank Commission 80 32,741 CR
18/1 Cheque no 6006 789 31,952 CR
24/1 Cheque no 6008 4,000 27,952 CR
29/1 Cheque no 1111 2,222 25,730 CR
31/1 Service charge 20 25,710 CR
31/1 Deposit 5,500 31,210 CR
31/1 Interest 18 31,228 CR
31/1 Deposit 7,700 38,928 CR
31/1 Cheque no 6001 1,000 37,928 CR
Lecture Summary 24/2/2022

Notes:
(i) On 29 January, Liu Rong Co deposited $7,700 once but it was wrongly recorded twice.
(ii) On 30 January, a cheque $3,000 received from a customer was deposited, but it was
dishonoured.
(iii) The correct amount for cheque no 6008 was $4,400.
(iv) The cheque no 1111 was issued by Lew Long Co, not Liu Rong Co.

REQUIRED:
(i) Update the Cash at Bank Account of Liu Rong Co.
(6 marks)
(ii) Prepare a Bank Reconciliation of Liu Rong as of 31/1.
(6 marks)
Lecture Summary 24/2/2022
Lecture Summary 24/2/2022

Liu Rong

(i) Update the cash at bank account

Cash at bank A/C

Date Particulars Amount Date Particulars Amount
2009 $ 2009 $
Jan.31 Balance b/d 43,000 Jan.31 Bank Comm. exp 80
Interest received 18 Service charge exp. 20
A/R (Dishonoured) 3,000
Correction error 7,700
Balance c/d 32,218
43.018 43,018
Feb. 1 Balance b/d 32,218

(ii) Prepare a bank reconciliation statement

Bank reconciliation statement as at 31 January 2009

RM RM
Balance as per bank statement, Credit 37,928
Add Uncredited deposits -
Add Bank error
(if it debited/ debited more/ credited less in the bank statement)
Cheque No. 1111 (Lew Long) 2,222 2,222
40,150
Less Unpresented cheques:
Cheque No. 6003 3,000
6007 1,100
6009 3,432
7,532
Less Bank error
(if it credited/ credited more/ debited less in the bank statement)
Cheque No. 6008 (Debited less) 400 (7,932)
Balance as per cash at bank account, Debit 32,218