1. ACT 110 Is EASY POP! Our Confession Because, Death and Life is in the Power of the Tongue!

2. Bank Reconciliation Lecture Notes 8

3. Bank Reconciliation Introduction Monies deposited in and paid out of the businesss bank account are usually recorded in the Bank Column of the cash Book. The bank also keeps such a record of items deposited and paid from the account, which should obviously match with the business record. However, there might be items paid into and out of our account at the bank which we have not recorded in the cash book.

4. Bank Reconciliation Introduction To see what these are we need a copy of our account kept at the bank which is called a Bank Statement. Bank Statement – a monthly statement of account mailed by a bank to each of its customers with checking or other accounts, recording the banking transactions and current balance during a period and usually including canceled checks. There may also be items that are recorded in the cash book, but not showing up on the bank account. As such, a Bank Reconciliation Statement should be prepared in order determine why there is a difference.

5. Bank Reconciliation Definition Made up of two (2) words Bank & Reconciliation Bank – Closing balances on –Bank Column of the Cash Book –Bank Statement balance of the business bank account Reconciliation - is a process that comes from the root To Reconcile, which means: –To Make agree –To explain disagreement in order to make aagree –To bring into agreement or harmony; make compatible or consistent: to reconcile differing statements; to reconcile accounts.

6. Bank Reconciliation Definition A calculation comparing the cash book with the bank balance. It should show whether or not errors have been made either in the bank columns of the cash book or on the bank statement. It is not a statement of double entry but just one explaining the difference between the bank balance and the cash book bank column.

7. Bank Reconciliation Why do we need it? The bank reconciliation statement is drawn up so as to cause the bank balance as shown by the bank statement to agree with the bank balance as shown by the bank column of the cash book. The purpose of a bank reconciliation statement in addition to determining the items responsible for the difference is to ascertain the correct bank balance as at a specific time and date, since the bank balance is needed for the balance sheet.

8. Bank Reconciliation Reasons for Differences Reasons for difference between the two sources of information are broadly categorised as: – Timing difference, – Informational Difference – and Errors.

9. Bank Reconciliation Reasons for Differences Specific factors responsible for cash book balance and balance as shown by the bank statement being different:- 1.Deposits in transit 2.Unpresented cheques 3.Bank charges 4.Bank credits 5.Bank or depositors errors

10. Bank Reconciliation Deposits in Transit Cash deposits made at the end of the month into the businesss bank in one month but received and recorded by the bank in the following month. Deposits in transit at the end of one months would be included in the next month bank state therefore it must be deducted from the deposits for the month as per bank statement to ascertain those deposits received during the month for that month.

11. Bank Reconciliation Unpresented Cheques These are cheques which have been paid and dispatched to individuals or business, but which have not been presented for payment at the payers bank. In effect these are items that are entered on the credit side of the cash book and had not yet been entered in the banks records. Unpresented cheques at the end of one month may be presented during the next month.

12. Bank Reconciliation Unpresented Cheques Those presented outstanding cheques from the previous period must be deducted from the cheques received during the month to derive those cheques paid and encashed at the bank during the month under consideration.

13. Bank Reconciliation Bank Charges These are charges which have been dispatched to the depositors balance for such items as: – Bank Services, – Printing Cheques, – Safe Deposit Rentals – and Not Sufficient Funds (NSF) Cheques. The depositor may not be aware of these charges until the receipt of the bank statement.

14. Bank Reconciliation Bank Credits Collection or deposits by the bank for the benefit of the account holder that may not be known to them until the bank statement is received. Bank or Depositors Errors Errors on either the part of the bank or the part of the depositor causing the bank balance to disagree with the depositors book balance.

15. Bank Reconciliation Standing Order A standing order is a request by a customer for the bank to make payments to third parties on a periodic basis. The customer records the transaction in his books on receipt of his bank statement, as he is unaware as to when or if the bank had made the payment on his behalf.

16. ACT 110 Is EASY POP! Our Confession Because, I am taking responsibility for my own Success or Failure!

17. Bank Reconciliation Model NAME BANK RECONCILIATION STATEMENT FOR MONTH, YEAR BALANCE AS PER CASH BOOK 000 Add: Note Collectible, Direct Deposit Bank Credit 00 Interest on Note 00 Interest Earned 00 Cash Book Error: Understated Deposit 00 Cash Book Error: Overstated Cheque 00 Cash Book Error : Omitted Deposit 00 000 BALANCE AS PER Bank Statement 000 Add: Deposits in transit 00 Bank Error: Understated Deposit 00 Bank Error: Overstated Cheque 00 Bank Error: Incorrect Deductions 00 Bank Error : Omitted Deposit 00 000

18. Bank Reconciliation Model NAME BANK RECONCILIATION STATEMENT FOR MONTH, YEAR BALANCE AS PER CASH BOOK 000 Add: Additions Less: Bank Charges 00 Standing Order 00 Interest Paid 00 Dishonoured Cheques 00 Cash Book Error: Overstated Deposit 00 Cash Book Error: Understated Cheque 00 Cash Book Error : Omitted Cheque 00 (000) Corrected Cash Book Balance 000 BALANCE AS PER Bank Statement 000 Add: Additions Less: Unpresented Cheques 00 Bank Error: Overstated Deposit 00 Bank Error: Understated Cheque 00 Bank Error: Incorrect Increases 00 Bank Error : Omitted Cheque 00 (000) Corrected Bank Statement Balance 000

19. Bank Reconciliation Dishonoured Cheques When a cheque is received from a customer and paid into the bank, it is recorded: – Debit Side of the Cash Book Bank Column – Credit Side of the Bank Statement. If at a later date the customers bank refuses to pay us the amount due on the cheque – This is known as a Dishonoured Cheque.

20. Bank Reconciliation Dishonoured Cheques There are several reasons for this as shown in this example – – Let us suppose that K. King gave us a cheque for $5,000 on May 20, 2002. We bank it and a few days later the bank returns the cheque to us. 1.Figures and Words Dont Match – If King had put $5,000 in figures, but had written in words five thousand five hundred dollars on the cheque – This cheque would not be honoured by the bank and would have to be returned to King for amendment.

21. Bank Reconciliation Dishonoured Cheques There are several reasons for this as shown in this example – – Let us suppose that K. King gave us a cheque for $5,000 on May 20, 2002. We bank it and a few days later the bank returns the cheque to us. 2.Stale Dated Cheques – Cheques are considered stale dated after six (6) months after the date on the cheque. The bank will not pay cheques 6 months old. If King had put 2001 on the cheque instead of 2002 then the cheque would be returned by the bank.

22. Bank Reconciliation Dishonoured Cheques There are several reasons for this as shown in this example – – Let us suppose that K. King gave us a cheque for $5,000 on May 20, 2002. We bank it and a few days later the bank returns the cheque to us. 3.Not Sufficient Funds Cheques – If King only had a balance of $2,000 in his account the bank will not honour the cheque of $5,000 because it will result in a overdraft on his account. The bank will write on the cheque refer to drawer and return in to us as a dishonoured cheque.

23. Bank Reconciliation Dishonoured Cheques Accounting Entries 2002 K. King May 1Balance b/d5,000May 20Bank5,000 May 25Bank: Dis Chq5,000 2002 Bank Account May 20K King5,000May 25Bank: Dis Chq5,000

24. Bank Reconciliation Bank Overdraft An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". It is shown by a credit balance in the cash book or a debit balance on the bank statement. The adjustment needed to reconcile the bank overdraft is the complete opposite of an account that is not overdrawn.

25. Bank Reconciliation Bank Overdraft – Comparison Balances Overdraft $ $ Balance/Overdraft as per cash book 0000 0000 Adjustments Unpresented Cheques Plus Less Bank lodgments Less Plus Balance/Overdraft per Bank Statement 0000 0000