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Unit 6: Bank Reconciliation Statement

A bank reconciliation statement reconciles the differences between a business's cash book balance and bank statement balance. Differences may arise due to timing of transactions, omissions from the cash book, or errors. Timing differences include uncleared deposits and outstanding checks. Omissions are transactions like direct debits that are not recorded in the cash book. Errors can occur when recording transactions. The reconciliation statement is prepared by comparing cash book and bank statement entries, identifying reconciling items, and calculating the adjusted cash balance. It is useful for ensuring accurate record keeping, controlling cash flow, and detecting fraud or bank errors.

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137 views10 pages

Unit 6: Bank Reconciliation Statement

A bank reconciliation statement reconciles the differences between a business's cash book balance and bank statement balance. Differences may arise due to timing of transactions, omissions from the cash book, or errors. Timing differences include uncleared deposits and outstanding checks. Omissions are transactions like direct debits that are not recorded in the cash book. Errors can occur when recording transactions. The reconciliation statement is prepared by comparing cash book and bank statement entries, identifying reconciling items, and calculating the adjusted cash balance. It is useful for ensuring accurate record keeping, controlling cash flow, and detecting fraud or bank errors.

Uploaded by

JohnnySaviour
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Unit 6

Bank reconciliation statement

What is a bank reconciliation


statement

Statement that helps identify and resolve


the differences between the businesss
cash book and the bank statement
issued by a bank
In theory the balance on the bank
account in the cash book should be the
same as the balance on the bank
statement
In practice however, it might be different
2

Why might balances differ

Timing differences

There is a delay between the cheque being


sent and the supplier paying the cheque
The bank takes at least three days to clear the
cheque
Unpresented cheques- cheques issued to
creditors, but not presented for payment to the
firms bank, till the date of reconciliation
Bank lodgements not yet credited-cheques
received from debtors but not deposited in the
bank account

Why might balances differ (Cont)

Omissions from the cash book

Credit transfer-money directly


deposited in the bank by a
debtor/customer
Direct debit-instructions given to bank
to pay an organization directly from the
firms account
Standing order-bank pays directly from
the firms accounts, payment like
insurance premium, rent, others
4

Why might balances differ (Cont)

Errors

Differences between bank statements and cash


books if errors are made (E,G failure to record
a transaction, mistakes in additions)

Dishonoured cheques

Drawer does not have enough money in the


bank to cover the cheque payment
The drawer has stopped the cheque
An error has been found on the cheque
Problem with signature of drawer

Activity 1

On which side of the cash book


should the following unrecorded
items be posted?

Bank charges
Direct debits/ standing orders
Direct credits
Dishonored cheque
Bank interest

How to prepare a bank


reconciliation statement
1.

2.

3.

Compare the entries in the cash


book with the bank
statements.Tick items that appear
in both the cash book and the
bank statement
Enter in the cash book any items
that remain unticked in the bank
statement. Calculate the new cash
balance
Prepare the bank reconciliation
statement- Method 1 or method 2
7

Example 1

Writing up updated cash book and


drawing up bank reconciliation
statement

Activity 2 and 3

Writing up updated cash book and


drawing up bank reconciliation
statement

Uses of the bank reconciliation


statement

It helps check the accuracy of the bookkeeping


in the cash book
It helps maintain a check on fraud and
embezzlement
It can be used to detect errors made by the
bank
It helps a business to control its cash flow. By
preparing bank reconciliation statements,
owners can identify precisely how much money
is available
Dishonoured cheques will be identified. They
will appear on the receipts side in the cash
book but will not appear on the bank statement
10

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