Banking & Bank Reconciliation
Looking at the cash book and bank
statement, identifying the difference
between the values
Cash Book
• The Cash Book is used as a Book of Prime
Entry and/or part of the double entry system
• The cash book records all monetary
transactions coming in or going out of the
business
• Receipts – debit side of the book
• Payments – credit side of the book
Cash Book v Bank Statement
• The cash book demonstrates to the business,
monies being received or paid out over time
• The bank statement demonstrates the monies
cleared by the bank for the business over a set
time
• We use the bank statement to ensure all
transactions shown in the cash book have
actually gone through the bank account.
• To ensure accuracy
Transactions used and shown on the statement
• Monies paid into the bank account
– Cash deposits via the bank counter or automated
teller machines (ATM)
– Cheque deposits via counter or ATM
– Automated payments received
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Bank Giro Credit (BGC)
Bank Automated Clearing System (BACS)
Clearing House Automated Payment System (CHAPS)
Faster Payment
Standing Order (SO)
Direct Debit (DD)
– Interest received from the bank (deposit accounts)
Transactions- Continuation
• Amounts paid out of the bank account
– Cheques issued to suppliers and presented by.. to
the bank for payment
– Debit card payments by phone, online and person
– Automated payments paid (as shown on previous slide)
– Interest and bank charges paid to the bank
Bank Statement
• At regular intervals the bank will produce a
statement showing all transactions processed by
the bank for the business.
• The statement will show an end date and balance
and the statement will have a sequence number
that follows on from the last statement.
• The bank will contact the business by best method
– email with link or mail with copy of statement
• The statement will show each transaction and the
revised daily bank balance after the transaction
Statement - cont
• Counter Credit is the narrative used for deposits
made over the bank counter
• CHQ denotes a cheque written and presented by
the supplier for payment
• Dishonoured Cheque is a customer’s cheque that
their bank cannot pay usually due to insufficient
funds
• REMEMBER the statement is a record of the
banks transactions so:
– A bank balance in the black is shown as a Credit
– An Overdraft balance is shown as a Debit
Bank reconciliation - reason
• When the bank statement arrives the business
will compare the statement balance against
the cash book balance and find a difference.
• The reasoning being:
– automated transactions that have been recorded
in the bank but not the cash book
• Or
– Transactions recorded in the cash book but not
shown in the bank statement
Methodology used to identify the
difference
• Compare the statement entries against the cash
book. Where an entry is shown in both the cash
book and the statement , tick them off.
• Any unticked items shown on the statement must
be checked and verified to ensure the bank has
not made a mistake (if an error, contact the bank)
• If the unticked item is valid, make an entry into the
cash book to show the adjustment
• Balance the cash book to achieve a revised
balance to be used in the Trial Balance
Difference - cont
• After the adjustments in the cash book there
could still be a difference
• Usually caused by timing differences
– Cheques sent to suppliers taking 3 working days to
clear plus time to deliver
– Cheques received by customers are banked but
again take 3 working days to clear
• To demonstrate the timing difference you will
write up a Bank Reconciliation Statement
Bank Reconciliation Statement – purpose
• The purpose of the statement is to reconcile
the adjusted cash book against the bank
statement to show transactions still awaiting
clearance through the bank account (items
that will appear in next bank statement)
Bank Reconciliation Statement
• Balance as Bank Statement
Plus Lodgements (customer receipts)
Less Unpresented cheques (supplier payments)
• Balance as per adjusted cash book
The lodgement and unpresented cheque values
will come from the cash book transactions
unticked. The BRS final balance should agree
with the cash book.