A statement prepared periodically to ensure that the bank account in the business cash book matches the

business bank account shown on the bank statement.

Reasons for the difference in Bank account and the bank statement
Transactions entered to the bank statement but not in the bank account
1. Standing Order
2. Direct debits
3. Bank charges
4. Bank interest
5. Direct remittances / direct credits
6. Dishonored cheques (refer to drawer)

Transactions entered to the cash book but not in the bank statement (Timing Difference)
1. Unrealized cheques (unlogged cheques)
2. Un Presented cheques
3. Errors

Importance or benefits of preparing Bank Reconciliation statement

1. Easy to detect the reasons for the differences in bank account.
2. Easy to detect the errors and frauds.
3. It improves the reliability and the accuracy of the financial statements.

Terms used in Banking

1. Standing order
It is a payment made automatically by the bank on behalf of the customer for a specific
payment made by bank to an outside party according to instructions given by customer.

2. Direct debits
It is a payment made by the bank on behalf of the customer when customer provides
the details of the transaction to the bank.

3. Bank charges
It is made by the bank to cover the cost of maintaining the customer’s account.
4. Bank Interest
 It is the interest charged by the bank when customer account balance is overdrawn.

5. Direct remittance
It is the amount paid into the customer’s account directly by another party.

6. Dishonoured cheque
Cheque returned by the bank without making a payment.

7.Unpresented cheques
- Any items which appear on the credit side of the cash book but which do not appear on the bank
statement

8.Unrealised cheques
- Any items which appear on the debit side of the cash book but which do not appear on the bank
statement

Formats of adjusted bank account and bank reconciliation statement

Adjusted cash book
Date Detail $ Date Detail $
Balance/b/d xx Standing order Xx
Direct remittance Bank charges xx
Direct credits Bank interest Xx
Dividend received Direct debits Xx
Dishonoured cheques Dishonoured cheques (received) Xx
(issued)
Direct debits Xx
Balance/c/d Xx
Xx xx
Balance/b/d xx

Bank reconciliation statement

Format 1
 Adjusted bank book balance xx
(+) unpresented cheque Xx
Xx xx
(-) unrealized cheques Xx
Xx (xx)
Balance as per bank statement Xxx

Format 2
Balance as per bank statement Xx
(+) unrealised cheques Xx
Xx Xx
(-) unpresented cheques Xx
Xx (xx)
Balance as per adjusted bank book xxx

How to prepare a bank reconciliation statement

Q1. A.J.Belstrode’s cash book and bank statement appears as follows at 31 March 2016
Cash book
Bank account
Date Detail $ Date Detail Cheque $
number
2016 Balance/b/d 1 250 Mar 8 Electricity 001022 300
Mar 1
Mar 7 Cash banked 700 Mar 10 Wages 001023 600
Mar 12 P.Romano 200 Mar 11 Rent 001024 400
Mar 15 Cash Banked 600 Mar 14 T.Martinez 001025 920
Mar 20 T.McNichol 430 Mar 15 Wages 001026 440
Mar 31 T.Matkin 594 Mar 28 A.Danshov 001027 120
Mar 29 F.Goswami 001028 96
Mar 31 H.Wenger 001029 300
Mar 31 Balance/c/d 598
3 774 3 774
April 1 Balance/b/d 598
 Bank statement
The Reddypay Bank
Money out Money in ($) $
($)
Mar 1 Balance/b/d 1 250 cr
Mar 7 Paid in 700 1 950 cr
Mar 10 Paid by cheque 1023 600 1 350 cr
Mar 11 Paid by cheque 1022 300 1 050 cr
Mar 12 Paid in 200 1 250 cr
Mar 14 Direct debit: I.Mallapati 227 1 023 cr
Mar 15 Paid in 600 1 623 cr
Mar 15 Paid by cheque 1026 440 1 183 cr
Mar 16 Paid by cheque 1024 400 783 cr
Mar 16 Paid by cheque 1025 920 137 dr
Mar 20 Paid in 430 293 cr
Mar 25 Bank Giro credit – bank interest 200 493 cr
received
Mar 31 Bank charges 112 381 cr

Prepare
- The adjusted cash book
- Bank reconciliation statement

Q2. The bank columns of P.Chene’s cash book show the following details for April
Date Detail $ Date Detail Cheque No. $
1 April Balance/b/d 486.87 3 April H.Pater 341 34.22
7 April H.Rajah 345.51 4 April T.Hannibal 342 72.91
10 April F.Thon 56.32 17 April C.Dod 343 310.00
23 April M.Singh 178.54 22 April D.Cols 344 130.08
30 April J.Cust 12.55 24 April N.Bedi 345 54.01
30 April R.Edy 346 145.37
30 April Balance/c/d 333.20
 1079.79 1079.79
1 May Balance/b/d 333.20

She received her bank statement on 3 May

Date Detail Debit ($) Credit ($) Balance
1 April Balance 486.87
7 April Lodgement 345.51 832.38
9 April 342 72.91 759.47
10 April 341 34.22 725.25
Lodgement 56.32 781.57
15 April Direct debit 45.66 735.91
expenses
17 April Credit transfer 61.00 796.91
(M.Chorte)
23 April Lodgement 178.54 975.45
29 April 344 130.08 845.37
345 54.01 791.36
30 April Bank charges 6.43 784.93

REQUIRED
a. Make any necessary adjustments for P.Chene’s cash book
b. Prepare a bank reconciliation statement

Q3. At 30 June 2016, Eliza’s bank statement shows a balance at bank of $1 000. When Eliza checks her
cash book she finds the following:
o A payment of $200 into the bank on 30 June does not appear in the bank statement
o Cheque totalling $325 sent to customers on 29 June do not appear in the bank statement
o The bank statement shows Eliza’s account has been debited with bank charges of $40. These have
not been recorded in the cash book
REQUIRED:
a. Prepare Eliza’s bank reconciliation statement at 30 June 2016
b. Calculate Eliza’s cash book at 30 June 2016, before it was corrected