1. Bank Reconciliation Statement

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4. The purpose of the bank reconciliation statement
Due to the timing difference, omissions and errors made by the bank or the firm itself.
The balance of the bank statement and the bank account in the cash book rarely agree.
Bank reconciliation statements can be used
To explain the reasons for the differences and to identify errors and omissions in both documents, so that corrections can be made as soon as possible.

5. Banking made shown in the cash book But not on the bank statement
Reasons for differences between the cash book balance and the bank statement balance
Uncredited items
They are deposits paid into the bank. These items occurred too close to the cut-off date of the bank statement and so do not appear on the statement. They will appear on the next statement.
Banking made shown in the cash book
But not on the bank statement

6. Unpresented cheques Standing orders Direct debits Bank charges
They are cheques issued by the firm that have not yet been presented to its bank for payment.
Standing orders
They are standing instructions from the firm to the bank to make regular payments.
Direct debits
They are payments made directly through the bank.
Bank charges
They are charges made by the bank to the company for banking services used.

7. Credit transfers / direct credits
Dishonoured cheques
They are cheques deposited but subsequently returned by the bank due to the failure of the drawer to pay.
Credit transfers / direct credits
They are money received from customers directly through the banking system.
Interest allowed by the bank
They are interest received for deposits or fixed deposits.

8. Nature of the cash book and bank statement
Cash Book (bank column only)
Debit represents an increase
Credit represents an decrease
Bank Statement Dr Cr
Balance
(represents
decrease)
increase)
the amount
owned to
the clients)

9. Drawing up a bank reconciliation statement
To reconcile the Bank statement with the Corrected Cash Books
To reconcile the Bank statement with Unadjusted Cash Book

10. To reconcile the bank statement with corrected cash book
Three steps:
1. Check the bank statement and the cash book
to identify the items which have been
omitted.
2. Update the cash book with any omissions and errors made by the firm itself.
e.g. Credit transfers (debit cash book)
Bank interest (debit cash book)
Standing orders / direct debits (credit cash book)
Bank charges (credit cash book)
Dishonoured cheques (credit cash book)
3. Prepare the bank reconciliation statement

11. Bank Reconciliation Statement as at XXXX
Rs. Rs.
Corrected balance in hand as per Cash Book x
Add Unpresented cheques x
Wrong credits by the bank x x x
Less Bank deposits not yet entered on Bank Statement x
Wrong debits by the bank x x

12. Example 1

13. Cash book(Bank column)
Question:
Cash book(Bank column)
Rs.
Dec Bal b/f
3 W Lee
T Cheung
S Sin
Rs.
Dec K Wong
C Kwok
M Tang
Bal c/f
Uncredited
items
Unpresented cheque
Bank Statement
Dr Cr Balance
Rs Rs.
Dec Balance
3 Cheque deposit
8 Cheque
10 Cheque deposit
11 Dishonoured cheque
11 Service charges
12 Autopay-rent
20 Cheque
31 Bank interest
31 Credit transfer-commission received
31 Balance
Bank charges
Direct debit

14. Cash Book (Bank Column)
Answer:
Cash Book (Bank Column)
Rs.
Dec 31 T. Cheung –
Dishonoured cheque 2,000
Dec 31 Balance b/f ,800
31 Commission Rec
31 Bank Interest
31 Bank charges
31 Rent
31 Balance c/f
5,150
5,150
Identify the items which have been omitted in the cash book

15. Bank Reconciliation Statement as at 31 Dec 2009
Rs.
Corrected balance in hand as per Cash Book
2870
Add
Unpresented cheques
2970
Less
Bank deposits not yet entered on Bank Statement
Balance in hand as per Bank Statement
1570
Only adjusted caused by timing difference

16. To reconcile the bank statement with the Unadjusted cash book
Two steps :
1. Check the bank statement and the cash book to identify the items which have been omitted.
2. Prepare the bank reconciliation statement.

17. Bank Reconciliation Statement as at XXXX
Begin with the unadjusted cash book balance and end with the bank statement balance
Bank Reconciliation Statement as at XXXX
Rs. Rs.
Corrected balance in hand as per Cash Book x
Add Credit transfers x
Bank interest x
Unpresented cheques x
Wrong credits by the bank x x x
Less Standing orders / direct debits x
Bank charges x
Dishonoured cheques x
Bank deposits not yet entered on Bank Statement x
Wrong debits by the bank x x
Balance in hand as per Bank Statement x
Amount received on bank statement
But not on bank statement
Timing difference
Bank error

18. Example 2
The facts are the same as Example 1, but the cash book was not updated.

19. Bank Reconciliation Statement as at 31 Dec 2009
Answer:
Bank Reconciliation Statement as at 31 Dec 2009
Rs. Rs.
Corrected balance in hand as per Cash Book ,800
Add Credit transfers
Bank interest
Unpresented cheques __450
5,250
Less Bank charges
Dishonoured cheques ,000
Bank deposits not yet entered on Bank Statement ,400
Direct debit ,680
1,570

20. With the amount of the post-dated cheque
Other Issues
Post-dated cheque
It is a cheque which has not yet matured within the current accounting period.
Accounting treatment
The cheque should be held by the cashier and no entry should be made until the cheque becomes mature.
If a post-dated cheque has been entered in the cash book, make correcting entries.
Dr Debtors
Cr Bank
With the amount of the post-dated cheque

21. With the amount of the state cheque
Stale cheque
It is a cheque which has been drawn for more than 6 months but has not yet gone through the bank of the drawee.
Accounting treatment:
Dr Bank
Cr Creditor
With the amount of the state cheque

22. Errors made by the bank
Errors corrected within the current accounting period
Errors not corrected within the current accounting period

23. Errors corrected within the current accounting period
-As the error has been corrected by the bank within
current accounting period, no adjustment is needed.

24. Example 3 : No adjustment should be made Bank Statement
Dr Cr Balance
Rs. Rs.
Dec 1 Balance
1 Cheque O/D
2 Credit , ,720
8 Cheque ,
20 Cheque O/D
20 Adjustment
No adjustment
should be made

25. Errors not corrected within the current accounting period
Example 4 :
An amount of Rs.1,000 which should be credited into the owner’s personal account was wrongly credited by the bank to the company’s bank account. The balance of the cash book is Rs.4,000 and the balance of the bank statement was Rs.5,000 at 31 Dec 2009

26. Bank Reconciliation Statement as at 31 Dec 2009
Answer:
Bank Reconciliation Statement as at 31 Dec 2009
Rs.
Balance in hand as per Cash Book ,000
Add wrong credit by the bank ,000
5,000
As it is an error made by the bank, no adjustment is needed in the
company’s cash book

27. Different opening balances of the cash book and the bank statement
The following steps should be taken:
Reconcile the opening cash book balance with the opening bank statement balance.
The adjusting items for the opening balances should not appear in the bank reconciliation statement of the current period.
Prepare the bank reconciliation statement.

28. Example 5

29. Cash book(Bank column)
Question :
Cash book(Bank column)
Rs.
Dec Bal b/f
2 C Lee
8 P Wong
T Kong
Rs.
Dec Bank charges( Nov) 500
K Tong
C Au
China Ltd
Bal c/f
Uncredited
item
Unpresented cheque
Bank Statement
Dr Cr Balance
Rs Rs.
Dec Balance
2 Credit
Credit
8 Credit
22 Standing order-rent
24 Service charges
31 Balance
Adjusting items for
opening balance

30. Bank Reconciliation Statement as at 1 Dec 2009
Answer
Step 1
Bank Reconciliation Statement as at 1 Dec 2009
Rs. Rs.
Balance in hand as per Cash Book
Add
Less
10,600
Unpresented cheque
13,000
Uncredited item ,000
Bank charges
1,500
Balance in hand as per Bank Statement
11,500
The adjusting items for the opening balance should not appear in
the bank reconciliation statement as at 31 Dec 2009

31. Cash Book (Bank Column)
Step 2
Cash Book (Bank Column)
Rs.
Dec 31 Rent ,000
Dec 31 Balance b/f ,238
31 Service charges
31 Balance c/d
11,238
11,238

32. Bank Reconciliation Statement as at 31 Dec 2009
Step 3
Bank Reconciliation Statement as at 31 Dec 2009
Rs.
Corrected balance as per Cash Book
Add
Less
Balance in hand as per Bank Statement
7,038
Unpresented cheques (Rs.1,400+Rs.2,100) ,500
10,538
Uncredited item ,300
9,238

33. Bank overdrafts
When there is a bank overdraft, the presentation of the bank reconciliation statement can be:
the same as those needed for a debit balance, but begins with a negative figure, or
the opposite of those needed for a debit balance.

34. Example 6

35. Cash book(Bank column)
Question :
Cash book(Bank column)
Rs.
Dec Bal b/f
6 Cash
13 C Lee
R Wong
Bal c/d
Rs.
Dec A Tong
T Chan
Textile Ltd
1997
Jan Bal b/d
Uncredited
item
Unpresented cheque
Bank Statement
Dr Cr Balance
Rs Rs.
Dec Balance
6 Cash
8 A Tong
13 C Lee
16 T Chan O/D
29 United Trust-standing order O/D Bank charges O/D
31 Balance O/D

36. Cash Book (Bank Column)
Answer:
Cash Book (Bank Column)
Rs.
Dec 31 Balance b/f
Dec 31 Balance c/f
31 United trust
31 Bank charges
460
460

37. Bank Reconciliation Statement as at 31 Dec 2009
Rs.
Corrected balance as per Cash Book (Overdraft)
Add
Less
Balance as per Bank Statement (overdraft)
(460)
Unpresented cheques 30
Uncredited item
(360)

38. JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.
FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA.
COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA.
CONTACT:
R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN