Bank Reconciliation Statement

Learning Objectives Explain the functions of a bank reconciliation statement Explain the causes of differences of the balance of the cash book and balance in the bank statement Update cash book Prepare a bank reconciliation statement

Methods of Payment and Receipt Cheques receipt Bank interest income Credit transfer (C/T) Cheques payment Bank charges Interest charges Standing order (S/O) Direct debit (D/D) or Autopay

Payment by Bank Standing Order is the instruction given by the depositor to the bank to make regular payment with a fixed amount to a specific person automatically from the depositor’s bank account. Direct debit or autopay is the instruction given by the depositor to his / her creditor’s bank to collect the money with a variable amount directly from the depositor’s bank account from time to time.

Record Transactions Cash Book Receipt / Deposit - Dr. (increase in asset) Payment / Withdrawal - Cr. (decrease in asset) Bank Statement Deposit - Cr. (increase in liability) Withdrawal - Dr. (decrease in liability)

Cheque Post-dated cheque Stale cheque Dishonoured cheque Unpresented cheque Uncredited cheque / Uncredited deposit

Dishonoured Cheques Cheques which cannot be converted as money when presented at the bank Possible reasons: Refer to drawer / Post-dated / Insufficient fund

Unpresented Cheques They have not been presented to the bank for money. Stale cheques are cheques not presented for more than six months from the date of issue.

Reasons for Differences Time differences in recording Errors occurred on the Bank account of the Cash Book and / or the Bank Statement

Bank Reconciliation Statement It is a statement to highlight and explain the differences between the balance of bank statement and the balance of the bank account of the cash book of a business.

Bank Reconciliation Statement It ensures the users the difference between the balance in bank statement and the balance in cash book can be justified with reasons.

Items in Bank Reconciliation Statement Cash Book Bank Statement Dr. Cr. Unpresented cheques Uncredited deposits Error on cash book Bank charges Standing order/direct debit Dishonoured cheques

Items in Bank Reconciliation Statement Cash Book Bank Statement Dr. Cr. Post-dated cheques Stale cheques Credit transfer Error on bank statement

Preparation of a bank reconciliation statement Enter ALL adjustments in the bank reconciliation statement Update cash book as well as prepare a bank reconciliation statement

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