CHAPTER 11
Bank Reconciliation
Statement
LEARNING OBJECTIVES
• Distinguish and explain items appearing
in the Bank Statement and Bank account
• Explain the need and the purpose of
preparing the Bank Reconciliation
Statement
• Prepare the Bank Reconciliation
Statement
INTRODUCTION
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Every month, individuals and businesses maintaining a #Current
Account” with a bank will receive a Bank Statement from the bank.
Upon receiving the bank statement, the focus is normally on the
ending balance besides the transactions on whatever deposits and
payments made.
The business expects the ending balance appearing in the bank
statement is the same as the amount in the Cash Book (bank
column)..
Thus, the purpose of Bank Reconciliation is to do necessary
adjustments to our records in the cash book and come up with the
same ending balance as recorded by the bank.
It is an analysis explaining the difference between a business’s
book balance of cash and its bank statement balance.
The Bank Reconciliation Statement must be prepared monthly to
justify amounts reported in the Bank Statement and the Bank
account kept by the business.
BANK STATEMENT
Bank Statement is normally debited for payments
or charges, and credited for receipts by the
business.
i. Examples of payments and charges: cheques
drawn in favour of creditors or suppliers, bank
charges, direct debits and standing
order/instructions.
ii. Examples of receipts: deposits of cash or
cheques, dividend, interest on current account
and bank GIRO credits or credit transfer.
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Sample Bank Statement
UITM BANK
Shah Alam
Statement of Account
Account No. 654321
Date
Date: 30April 2007
Particulars
Debit
Credit
Balance
April 1
Balance b/f
800.50 Cr
April 3
Cash deposit
7,000.00
7,800.50 Cr
April 4
Transfer from branch
2,500.00
10,300.50 Cr
April 6
Cheque book
April 8
5.00
10,295.50 Cr
70010
550.00
9,745.50 Cr
April 10
70011
700.00
9,045.50Cr
April 12
70012
430.00
8,615.50 Cr
April 15
Bank GIRO Credit
April 20
Direct Debit
April 25
Interest
April 28
Bank Charges
645.00
574.00
8,686.50 Cr
166.70
10.00
9,260.50 Cr
8,853.20 Cr
8,843.20 Cr
CASK BOOK (BANK COLUMN)
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Cash book or bank account is normally
debited with receipts (deposits of cash or
cheques)
credited with payments (cheques drawn in
favour of creditors or suppliers) of the
business.
Sample Bank account
Bank account
Balance bId
Cash deposit
Credit Transfer
Intan Brothers
800.50
7,000.00
2,500.00
200.00
________
10,500.50
Bank charges -cheque
5.00
book
AB Trading – 70010
550.00
Maju Bhd - 700011
700.00
Arif -70012
430.00
Sam-70013
350.00
Balance c/d
8,465.50
10,500.50
Differences between Bank Statement
Balance and Bank Account Balance.
a) Items recorded in the Bank account but not recorded by the
bank:
i. Uncredited lodgement or deposits not yet credited. This
happens when a business deposits money or cheques but
the amount does not appear in the bank statement since the
deposits has not yet been processed by the bank; but has
already been recorded by the business.
Ii. Unpresented cheques. Cheques drawn for payment to
creditors or others have not been cashed or banked, i.e.,
when cheques are drawn for payment and sent to creditors,
the record in the business books has been made, but for
some reasons the creditor is still carrying the cheque around
and have not presented it to the bank for clearance.
Differences between Bank Statement
Balance and Bank Account Balance.
(b) Items recorded in the Bank Statement but not recorded by the business:
i. Direct debit. The bank debited the account of the business for payments
such as insurance premiums, rates, fees, subscriptions etc.
ii. Standing instructions order. This is quite similar to the direct debit in that
the bank will debit the account of the business for payments such as
insurance premiums, rates, subscriptions, etc.
iii. Bank service charge. This is a fee charged by the bank for operating the
account for the business andlor issuing the cheque book.
iv. Bank GIRO credit or credit transfer. The business account is credited with
amount paid by creditor or other organisation direct into the business bank
account.
v. Interest revenue on current account This interest is credited to the
account of the business and is paid by certain bank based on large enough
balance of cash in the account.
vi. Dishonoured cheques. A cheque, that the bank will not honour upon
presentation by the business for clearance. However, the business has
already accepted the cheque for the cash book settlement of a debt.
Differences between Bank Statement
Balance and Bank Account Balance.
(c). Errors
I.
Errors made by the bank - a cheque payment
by a debtor had been debited to the business
account by the bank, or a bank may make an
error in recording the amount to be debited or
credited.
II.
Errors made by the business - error in
recording the amount to be debited or credited,
or transactions are being debited to the cash
book instead of being credited.
PREPARATION OF ADJUSTED
BANK/CASH BOOK ACCOUNT
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i.
ii.
iii.
iv.
v.
Updating the Bank account
Matching of entries on the bank statement with those in the bank
account. This is done by ticking items that appear both in the bank
statement and in the bank account.
Items appearing in the bank statement but not in the bank account
are transferred to the bank account.
There would still be items in the bank account left unticked and they
would be treated as either uncredited lodgement (if it is a debit
item) or as unpresented cheques (if it is a credit item) and these
items would be dealt with in the bank reconciliation statement later
on.
Any errors relating to the bank account would be dealt with at this
stage.
Complete the necessary double entry and carry down the balance
of the bank account.
PREPARATION OF BANK
RECONCILIATION STATEMENT
b. Preparing the Bank Reconciliation Statement
i. Start with balance as per updated bank account balance
Bank Reconciliation Statement as at …..
Balance as per updated bank account
xx
Add: Unpresented cheques
xx
Less: Uncredited lodgements
(xx)
Balance as per bank statement
xxx
ii. Start with balance as per bank statement
Bank Reconciliation Statement as at….
Balance as per bank statement
xx
Add: Uncredited lodgements
xx
Less: Unpresented cheques
(xx)
Balance as per updated bank account
xxx
TREATMENT OF ERRORS, OVERDRAFT AND
OPENING BALANCE
DISAGREEMENTS
The explanation below are meant for bank reconciliation
statement that starts with the updated bank account balance:
I. Opening balance disagreements: the normal procedure is to
account for the opening difference, i.e. by matching and
ticking against the entries in the previous period’s bank
account.
II. Errors made by the bank: if as a result of the error, the bank
balance has been understated, for example, if the bank had
wrongly debited the bank statement, subtract the amount, The
reverse treatment is necessary if the bank had wrongly
credited the bank statement and as a result the bank
statement balance had been overstated.
III.Overdraft for such cases the uncredited lodgement will be
added whilst the unpresented cheques subtracted.
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Example
Bank account
Balance b/d
8465.50 Direct debit
Bank GIRO Credit
645.00 Bank charges
Interest
166.70 Balance c/d
9,277.20
574.00
10.00
8,693.20
9,277.20
Bank Reconciliation Statement as at 30 April 2007
Balance as per bank account (updated)
8,693.20
Add: Unpresented cheques
350.00
9,043.20
Less: Uncredited lodgments
200.00
Balance as per bank statement
8,843.20