Bank reconciliation statement: -

Is a document prepared by a business to explain why the updated

bank balance in the cash book, does not agree with the balance on
the bank statement.

It is a statement that reconcile the difference between bank balance in

business account and bank balance in bank account. Cash book is an
owner record (debit means + balance and credit means – balance)
while bank statement is a bank record (debit means – balance and
credit means + balance).
Some entries which are recorded in the bank statement but not
recorded in cash book are to be adjusted in the updated or revised
cash book. Similarly, some entries which are recorded in the cash
book but are not recorded in the bank statement are to be adjusted in
bank reconciliation statement.
Favorable Unfavorable
balance balance
Business Dr Cr
Bank Cr Dr

Bank statement: -
Bank statement is a copy of a customer’s account in the books of the
bank which is sent to the customer at regular intervals.
Reasons why the (cash Book)bank Colom and the bank
statement may different
• The different times at which the same items are recorded
• The business not recording certain items in the cash book.
Timing differences
These are usually due to:
1) Cheques not yet presented
2) Amounts not yet credited
Items not recorded in the cash book
It often happens that the business does not record certain items until
the bank statement is received. These include:
1) Bank charges and bank interest
2) Dishonoured cheques
3) Amounts paid directly into the bank
4) Amounts paid directly by the bank to others
Some important definitions
Unpresented Cheques: -
A cheque has been written and accounted for, but it has not yet been
paid out by the bank. Unpresented cheques are also referred to as
outstanding cheques.
In simple words these cheques are given to the account payables or
any other party but they did not cashed them till the year close.
Uncredited Cheques: -
Uncredited cheques represent money that is available to the company
but has not yet been recognized by the bank.
In simple words these cheques are received from debtor or any other
party and paid in to the bank but there amount did not added to your
bank account due to the clearance process.
Bank Overdraft: -
An overdraft lets you borrow money through your current account by
taking out more money than you have in the account.it is a form of
short term loan.
Standing order payments:-
These are regular payments of fixed sums at a stated date by the
bank under the authority of the business. Like payment of
insurance, rent etc.
Direct debits: -
An arrangement made with a bank that allows a third party to transfer
money from a person's account on agreed dates, typically in order to
pay bills, It is the same as to standing order payments but sum is not
fixed like utility bills
Credit Transfers: -
A credit transfer is a payment transaction by which a payment service
provider transfers funds to a payee's account against a payer's order.
Direct credits (also called deposits, lodgments):-
Direct credits arise when someone pays a debt by transferring money
from his or her own account directly to business bank account. This is
also called interbank Giro or credit transfer. Like dividend received
directly into the business bank account.
Dividends: -
Dividends are the payments given to the shareholders as a reward for the
money invested in to the business.
Bank charges and bank interest:-
These amounts are taken from the business bank account to cover the cost
of running the account and providing services, interest on bank loan and
bank overdraft.
Bank errors:-
The bank statement may contain some errors which are done by the bank.

Dishonored cheques:-
The cheques which have been paid into the bank for payment but which
have been returned usually due to insufficient fund in the account
Some important notes
• Opening balance of updated cash book might be credit as it is
overdraft so it will be liability. similarly closing balance might be credit
• Closing balance of updated cash book is recorded in current assets in
statement of financial position
• Bank reconciliation can start form the bank statement and updated
cash book balance
• Bank reconciliation balance must be equal to balance in the pass
book other wise there will be mistake.
• Cash book errors only correct in the updated cash book, do not adjust
in bank statements
• Bank errors only adjust in bank reconciliation statement
• Only bank column of the cash book is to be adjusted, so only
single column cash book is prepared.

Stages of bank reconciliation

1) Compare the bank account in the cash book with the bank statement
2) Update the cash book
3) Correct any errors in the cash book
4) Balance the cash book and carry down the balance
5) Prepare a bank reconciliation statement
Advantages of bank reconciliation
The advantages of reconciling the balance on the bank statement with that
shown on the bank account in the cash book are:
1) After updating the bank account an accurate bank balance is available.
2) Errors in the bank account or on the bank statement can be identified.
3) It assists in discovering fraud and embezzlement.
4) Amounts not credited by the bank can be identified.
5) Cheques not yet presented can be identified.
6) Any ‘stale’ cheques (these are usually those which are over six months
old, which will not be met by the bank) can be identified and written back
into the bank account.

Note:-
It is important to remember that the bank columns are actually part of the
main three column cash book – not a separate ledger account.

Updated Cash Book

Date Detail $ Date Detail $
Balance b/d xxx Balance b/d(O/D) xxx
Bank interest (received) xxx Bank charges xxx
Dividends(received) xxx Bank interest (paid) xxx
Credit Transfers xxx Standing orders xxx
Direct Credit xxx Direct debits xxx
Commission(received) xxx Any Other Payments
Any other income made by the bank xxx
Recived xxx Dishonour Cheques xxx
Balance c/d(O/D) xxx Balance c/d xxx
xxx xxx
 1) If balance is Positive
Bank Reconciliation Statement
$
Balance as per updated cash book Dr. xxx

Add Unpresented Cheques/ outstanding cheques Dr. xxx

Less Uncredited Cheques/ uncollected cheques Cr. (xxx)

Bank Error Dr./Cr. xxx/(xxx)

Balance as per bank Statement xxx

2) If balance is Over Draft

Bank Reconciliation Statement
$
Balance as per updated cash book (O/D) Cr. (xxx)

Add Unpresented Cheques Dr. xxx

Less Uncredited Cheques Cr. (xxx)

Bank Error Dr./Cr. xxx/(xxx)

Balance as per bank Statement xxx

Example:-
The bank columns of Fatima’s cash book for the month of April 20–8 are:

Fatima’s bank statement for the month of April 20–8 is:

It is discovered that Fatima has made an error on 10 April and recorded

purchases as $234, when the correct figure was $243.
a) Make any additional entries that are required in Fatima’s cash book.
Balance the bank account and bring down the balance on 1 May 20–8.
b) Prepare a bank reconciliation statement at 30 April 20–8.
The first thing to do is to compare the entries in the cash book with those
on the bank statement. Place a tick (✓) against the items appearing in both
the records.
The cash book and the bank statement should now look like this:
It is now possible to update the bank account in the cash book. Firstly, the
error on 10 April must be corrected. Items appearing in the debit column of
the bank statement which have not been ticked off (excluding 13 April
which has now been corrected in the bank account) must be credited in the
bank account. Items appearing in the credit column of the bank statement
which have not been ticked off must be debited in the bank account.
A)

The bank reconciliation statement can now be prepared.

B)
Q1 Complete the following table by placing a tick in the correct column to
indicate whether each item would be used to update the cash book or
would appear in the bank reconciliation statement.
Updating cash Bank
book reconciliation
statement
Unpresented cheque

Bank charges

Direct debit paid for electricity

Credit transfer from Waseem

Cash sales not yet credited

Bank error

Cheque from Account

Receivable dishonoured

Q2 From the following, draw up a bank reconciliation statement from details

as on 31 December 2016:
Cash at bank as per bank column of the cash book $ 6,000
Unpresented cheques 1,400
Cheques received and paid into the bank, but not yet entered on the bank
statement 1,200
Credit transfers entered as banked on the bank statement but not entered
in the cash book 200
Cash at bank as per bank statement 6,400
Q3 Draw up a bank reconciliation statement, after writing the cash book up
to date, ascertaining the balance on the bank statement, from the following
as on 31 March 2016:
Cash at bank as per bank column of the cash book (Dr) $ 8,760
Bankings made but not yet entered on bank statement $ 580
Bank charges on bank statement but not yet in cash book $ 16
Unpresented cheques A. Steel $ 240
Standing order to Mega Ltd entered on bank statement, but not in cash book $ 180
Credit transfer from R. Tale entered on bank statement, but not yet in cash book $ 420

Q4 The following are extracts from the cash book and the bank statement
of Z. Varga. You are required to:
(a) Write the cash book up to date, and state the new balance as on 31
December 2016, and
(b) Draw up a bank reconciliation statement as on 31 December 2016.
Cash Book
2016 Balance b/d 4200 2016 S.Tims 648
Dec 01 Dec 08
07 G.White 220 15 R.Goss 32
22 P.Davy 94 28 P.Clark 266
31 G.Gow 346 31 Balance c/d 4202
31 L.Till 288
5148 5148

Bank Statement
DR. CR. Balance
$ $ $
2016 Dec Balance b/d 4200
01
07 Cheque 220 4420
11 S.Timms 648 3772
20 R.Goss 32 3740
22 Cheque 94 3834
31 Credit Transfer j.Hill 186 4014
31 Bank Charges 64 3950
Q5 The bank columns in the cash book for June 2016 and the bank statement for that
month for D. Hogan are as follows:

Cash Book
2016 Balance b/d 1410 2016 L.Holmes 180
Jun 01 Jun 05
07 J.May 62 12 J.Rebus 519
16 T.Wilson 75 16 T.Silver 41
28 F.Slack 224 29 Blister Disco 22
30 G.Baker 582 30 Balance c/d 1591
2353 2353

Bank Statement
DR. CR. Balance
$ $ $
2016 Jun Balance b/d 1410
01
07 Cheque 62 1472
08 F.Lane 180 1292
16 Cheque 75 1367
17 J.Rebus 519 848
18 T.Silver 41 807
28 Cheque 224 1031
29 SLM Standing Order 52 979
30 Flynn Traders Credit 64 1043
30 Bank Charges 43 1000

You are required to:

(a) Write the cash book up to date to take the above into account, and then
(b) Draw up a bank reconciliation statement as on 30 June 2016.