Basic Online Bookkeeping & Accounting Guide » h. Bank Reconciliation

Bank Reconciliation Statement-How To Prepare It(Part3)

slang — Sat, 27 Oct 2007 04:09:55 +0000

The following steps to prepare a bank reconciliation statement is narrated below:

When the bookkeeper received the Bank Statement he has to first check all the entries in the Cash Book for THAT PERIOD against the Bank Statement.
All items appearing on BOTH the Cash Book and the Bank Statement will be ticked (check-marked)
For items that are not ticked, the bookkeeper needs to know the nature and detail of each item.
The bookkeeper needs to WRITE UP the Cash Book by entering those items that are on the Bank Statement but not in the Cash Book. The Cash book is then balanced to get the ADJUSTED Cash Book Balance.
With step 1-4 completed, we are ready to prepare a Reconciliation Statement. The bookkeeper can start with Balance as per adjusted Cash Book or Balance as per Bank Statement.

SEE PART 4 FOR A SIMPLE ILLUSTRATION ON PREPARING THE BANK RECONCILIATION STATEMENT.

Bank Reconciliation-Discrepancies between Cash Book & Bank Statement(Part2)

slang — Sat, 27 Oct 2007 03:59:39 +0000

In Part 1, we discuss the necessity for the reason(s) for doing a Bank Reconciliation statement.

Very often because of timing challenges, we can see the following items that appeared in the Bank Statement but NOT in the Bank Account of the company’s Cash Book:-

Debit Side Of The Bank Statement:

Bank charges and commission;

Bank overdraft interest;

Cheques from customers that have been dishonoured;

Telegraphic transfers made by the company;

Standing order instruction

Credit Side Of The Bank Statement:

Interest and dividends received by bank on behalf of the company;

Re-presented cheques which are cheques earlier dishonoured now represented for payment;

Credit transfers/amount paid direct by debtors to the companyâ€™s bank account.

Basically, the bank reconciliation statement is to reconcile the timing difference between the Cash Book and the Bank Statement which are as follows:

Main Reasons For Timing Difference

Unpresented cheques:

Items on the credit side of the Cash Book not in the Bank Statement.

Cheques drawn in favour of creditors and credited in the Cash book may not yet been presented by the creditors for payment;

Lodgements Not Credited:

Items on the debit side of the Cash Book not in the Bank Statement.

Mainly cheques received and banked but not recorded by the bank because these cheques have not been cleared by the clearing system;

Payments on Bank Statements not in the Cash Book

Example like credit transfers and standing order, bank interest, bank overdraft interest and charges;

Cheques dishonoured entered in the Bank Statement not in the Cash Book;

Dividends received, bills receivables, etc collected by the Bank and recorded in the Bank Statement but not in the Cash Book

Bills payables paid by the bank and recorded in the Bank Statement but not in the Cash Book

Bank Reconciliation Statement & Its Objective(s)(Part1)

slang — Sat, 27 Oct 2007 03:52:05 +0000

As the company’s bookkeeper, you are recording the transactions in your company’s bank account in the Cash Book. How do you know that all the entries recorded are accurate and also you have taken up all the appropriate transactions? The answers lie in reconciling all the items in your bank account with a statement given by your bank on a regular basis. The statement given by the bank is called a bank statement which gives details of money drawn out and deposits made by your company. The statement that gives the final answers after reconciling the difference between the items in the company’s bank account and the items in the bank statement is known as a BANK RECONCILIATION STATEMENT

From the company’s viewpoint:

whenever a company deposits money in the bank, the Cash Book is debited and vice versa credited when a firm draws out money.

From the bank’s point of view:

on the bank statement, the entries are the REVERSE of those in the Cash Book. To the company, a deposit at the bank is an asset and it is recorded as a debit in the Cash Book. But to the bank, a deposit by a customer is a liability as it has to make payment to the customer on demand. So the bank will credit any deposit made by a customer in the bank’s books. A withdrawal of money will be debited in the bank’s books.

Let’s recap:

Reason For A Bank Reconciliation Statement

Due to the timing of the recording of the receipts and payments in the Cash Book from the recording by the bank, very frequently, a Bank Statement balance may not agree with the balance in the Cash Book.

Hence, a bank reconciliation statement needs to be drawn up to reconcile the difference in the balance between the Bank Statement and the Cash Book.

The importance or the objective(s) of having bank reconciliation statements are as follows:-

To ensure no omission of transactions into the company’s Cash book, one should consistently reconcile the bank statement with the company’s cash book
That bank reconciliation is between A PERIOD OF TIME, say we have finished reconciled for the month of January, then we proceed to reconcile for the forthcoming month of February and so on.
Without a proper bank reconciiation statements, we might not a correct position of our bank account(s). Examples like dishonored cheque, bank charges/overdraft interest from banks or wire transfer /direct credit of lodgement by customers are not recorded in the company’s cash book

Answers To Accounting Question No 4&5 On Bank Reconciliation Statement

slang — Sat, 20 Oct 2007 07:39:57 +0000

Answer to Accounting Test Question No 4:

Company A

Bank Reconciliation as at 31 st July 2006 $

Balance as per bank statement at 31st July 2006 55,262

Add: Deposits in transit / Uncredited deposits 1,300

56,562

Deduct:

Unpresented cheques

Check No

6661 dated July 20th $380

6662 dated July 27th 1,050

Adjusted Bank balance at 31st July 2006 55,512

Balance as per Bank account at 31 st July 2006 55,597

Add: Check no 6666 (Overstated amount) 180

55,777

Deduct:

Bank service charge $55

Dishonored check $210

265

Adjusted Cash balance at 31 st July 2006 55,512

Answer to Accounting Test Question No 5:

Part 1 : Preparation of Bank Reconciliation Statement:

Company XYZ

Bank Statement As At 31 st August 2006 $

Step 1: Bank Balance to Corrected Balance

Balance per Bank Statement $74,674

Add: Deposits Outstanding 8,200

Deduct: Checks Outstanding (8,420)

$74,454

Step 2: Book Balance to Corrected Balance

Balance per Book $78,304

Service charges (50)

Automatic monthly transfer (2,000)

Error in recording cash disbursement ($2,000-200) (1,800)

Corrected Cash Balance $74,454

Part B: To record credits to cash revealed by the bank reconciliation.

Miscellaneous charges ( bank service charges) $50

Cash-savings account $2,000

Accounts payable $1,800

Cash $3,850

[PS: Each adjustment affecting the book balance required journal entries

None of the adjustments to the bank balance require entries. ]

Accounting Test No 4 & 5 On Bank Reconciliation Statement

slang — Sat, 20 Oct 2007 07:36:30 +0000

Accounting Test Question No 4:

In early August 06, Company A received a bank statement which showed a balance of $55,262 as at 31 th July’06. However, its own record showed a balance of $55,597 on the same date.

The following differences are identified:

(i) Deposits amounted to $1,300 was not in the bank statement;

(ii) Two checks were sent to suppliers, but yet to be accounted for by the bank. The checks details were as follows:

· Check no:6661 dated July 20 $380

· Check no:6662 dated July 27 $670

(iii) The bank imposed a service charge of $55

(iv) A check no 6666 issued on July 24 for water bill amounting to $3,350 was wrongly entered in the cash payment journal as $3,530. The amount was correctly shown as $3,350 in the bank statement.

(v) A check amounting to $210 was received from customer ABC on July 15 and deposited a day after. However, due to insufficient fund in Mr.ABC’s account, the bank informed the Company A that the dishonored check had been debited to Company A.

Show the Bank Reconciliation Statement for Company A.

Accounting Test Question No 5:

Company XYZ received a bank statement for the month of August 2006. The bank statement showed the following information:

Balance, August 1, 2006 $68,326

Deposits 45,300

Checks processed (36,222)

Service charges (50)

Monthly deposit into saving account directly

Deducted by bank from account (680)

Balance, August 31 st , 2006 $76,674

Company XYZ’s general ledger account had a balance of $78,304 at the end of August 2006.

(i) Deposits outstanding amounting to $8,200;

(ii) all checks written by the company were processed by the bank except for those totaling $8,420;

(iii) A $2,000 check to a supplier correctly recorded by the bank but was incorrectly recorded by the company as $200 credit to cash.

Required:

1. Prepare a bank reconciliation statement for the month of August’06

2. Prepare the necessary journal entries at the end of August to adjust the general ledger cash account.

[ Refer Answers ]

Accounting Test Question No 3 on Bank Reconciliation Statement

slang — Sat, 20 Oct 2007 07:04:46 +0000

The following are the transactions from Jim’s Cash Book for January 2007:-

Cash Book
	$		$
Opening b/f	1,478	Payments	16,891
Receipts	16,071	Balance c/d	658
	17,549		17,549

You found the following:(a) bank charges $45 shown on the Bank Statement have not been entered in the Cash Book(b) a cheque drawn for $59 has been entered in error in the Cash Book as a receipt(c) a cheque for $158 deposited has been dishonored by the bank but it has not been written back in the Cash Book(d) Two cheques issued to suppliers for $114 and $284 have not yet been presented to the bank.(e) a lodgement of $481 made on the last day of the month has not yet been credited to the account by the bankQuestion:You are required to:( i) show what adjustments you would made in the Cash Book(ii) prepare a Bank Reconciliation Statement as at 31 January 2007[Answer: Adjusted Cash Book-$337 & Balance as per Bank Statement$254]