1. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CHAPTER 10 Bank reconciliations Learning outcome To reconcile bank statements with the cash records of a business 10-1

2. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS Bank charges Bank statements Need for bank reconciliations Bank reconciliation checklist Bank statements with a debit balance Bank statements with a credit balance Dishonoured cheques Internal control Outstanding receipts and debits 10-2

3. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd BANK RECONCILIATION AS AN INTERNAL CONTROL Verifies that balance at bank agrees with cashbook balance Bank statement extracted from bank records 10-3

4. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd ELECTRONIC BANKING Direct deposits ─Payments made directly into a bank account of client Direct debits (payments) ─Payments made by bank on behalf of client 10-4

5. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd ELECTRONIC BANKING cont. Software enables 24-hour electronic: payment of creditors and expenses payroll transactions funds transfers between accounts remittance processing 10-5

6. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd ELECTRONIC BANKING cont. Provides access to: –bank account balances –bank statements 10-6

7. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd BANK RECONCILIATION Internal control Helps detect errors and/or misappropriations Bank statements compared with the cash records of the business on a regular basis Ensures all receipts are properly accounted for and banked Enables recording of bank cheques, direct deposits or payments and interest 10-7

8. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd BANK RECONCILIATION cont. Bank statements and bank reconciliations retained as permanent records Identifies cheques in cash payments journal not presented at bank Identifies dishonoured cheques Identifies any mathematical errors in cashbooks or bank statements 10-8

9. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd BANK RECONCILIATION PROCEDURES 10-9

10. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd Entries in bank’s accounting records The bank’s accounting records show the opposite of what is entered in the business records. When money is received by a business, the amount is entered in the cash receipts journal. The total of this journal is then posted as a debit to the Cash at bank ledger account. The bank will credit the business account on the bank statement, as it receives the bank or electronic deposits, as it is a liability to the bank as it owes the money to the customer. When the business draws cheques, the total of the cash payments journal is credited to the Cash at bank ledger account. When the cheque is presented the bank will debit the business account on the bank statement. 10-10

11. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd Contents of a bank reconciliation statement 1. If the bank account shows a credit balance: add outstanding deposits; and deduct unpresented cheques This should equal a debit balance as per the Cash at bank ledger account 2. If the bank account shows a debit balance: add unpresented cheques; and deduct outstanding deposits This should equal a credit balance as per the Cash at bank ledger account 10-11

12. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd DISHONOURED CHEQUES Drawer has insufficient funds Cheque unsigned Incorrect or incomplete information Appears as a debit on bank statement 10-12

13. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd RECONCILIATION CHECKLIST 1.Check off items common to both bank statement and cash books 2.Add to cashbook items on bank statement but not in cashbooks (e.g. bank charges) 3.Mark outstanding and unpresented items in cashbooks and not on bank statements 4.List all o/s deposits and unpresented cheques 10-13

14. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd RECONCILIATION CHECKLIST cont. 5. Add o/s deposits to bank statement balance and subtract unpresented cheques if bank statement has a credit balance 6.Add unpresented cheques and subtract o/s deposits if bank statement has a debit balance 7.The balance calculated should equal cashbook balance 10-14

15. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd Entries in bank’s accounting records The bank’s accounting records show the opposite of what is entered in the business records: –When money is received by a business, the amount is entered in the cash receipts journal –The total of this journal is subsequently posted as a debit to the Cash at bank ledger account –The bank will credit the business account on the bank statement when the deposit is received –When the business draws cheques, the total cash payments journal is credited to the Cash at bank ledger account –When a cheque is presented, the bank will debit the business account on the bank statement 10-15

16. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd Contents of bank reconciliation statement If the bank account shows a credit balance: –add outstanding deposits; and –deduct unpresented cheques This should equal a debit balance as per the Cash at bank ledger account If the bank account shows a debit balance: –add unpresented cheques; and –deduct outstanding deposits This should equal a credit balance as per the Cash at bank ledger account 10-16