Introduction to bank reconciliation
Spot the differences
Bank Reconciliation
A bank reconciliation is the process of matching
the balances in the business records to the bank
records.
The goal is to find the differences between the
two (business records vs bank records) and
making changes to the business records as
appropriate.
Q: Why do business do bank reconciliation?
Why do bank reconciliation?
• Identify any errors committed by the business or
the bank (rare).
• Helps the business identify the actual amount of
cash available to spend.
• Without bank reconciliation you expose your
business to risk. Risk of people stealing from your
account.
Why do bank reconciliation?
• The bank reconciliation may also show any undue
delay in the clearance of cheques.
• A balanced bank reconciliation provides
confidence in the accuracy of the business
records.
Bank Records:
Bank Statement
Business Records:
Compare
Find the differences
• Cash receipts
journal
• Cash payment
journal
• Cash at bank
account
Tick each entry that appears in both sets of records
And circle the entries do not appear in both set of records
Entries found in the bank records but missing in the business
records should be added to the business records
Prepare a cash balance summary
Prepare a bank reconciliation statement.
What information
does the
bank statement
What is a bank
statement?
provide?
A bank statement is a document that is issued by a
bank once a month to its customers.
• The beginning cash balance in the account
• + The deposited cheques and cash
• - Cash withdrawn from the account
• - Cheques paid out
• + Interest earned on the account
• - Bank charges against the account
• = Ending cash balance in the account
1) The business owner (Mr. A) makes a cash sale of
$200 and deposit the cash into the bank (NAB).
• What is the double entry for the business?
DR Cash $200, CR Sales $200
• What is the double entry for the bank?
DR Cash $200, CR Bank statement (deposit) $200
The $200 the bank received is not from sales, but an
obligation/liability to return the $200 to the business owner
on demand.
Bank Interest earned
Bank automatically add interest to the account.
When you open an account at a bank, the bank
will pay you to keep your money at their bank.
Bank charges
Bank automatically deducts charges from the
account.
Examples
• Monthly bank service charge - cost of
maintaining an account.
• Bank charges a fee when a cheque is returned
for insufficient funds.
• Bank charges a fee on an overdraft account.
2) Mr. A’s bank (NAB) deducts a bank charge of $6.
• What is the double entry for the business?
DR Bank charges $6, CR Cash $6
• What is the double entry for the bank?
DR Bank statement $6, CR Bank service charge revenue $6
When bank charges Mr. A $6, the bank earns $6.
Bank Statement
Date
XXX
XXX
XXX
XXX
Description
Balance b/f
Cash Sales
Bank interest earned
Monthly bank service charge
DR
CR
Balance
200.00
5.00
6.00
√
√
0
200.00 CR
205.00 CR
199.00 CR
Missing in cash receipts journal
Cash receipts journal (DR)
Date
xxx
Particulars
Cash sales
Rec no. Debtors
Cash sales
xx
Sundries
200.00
Bank
200.00
200.00
Cash payments journal (CR)
Date
xxx
Particulars
Chq no. Creditors
Monthly bank service charge
Cash Purchase Sundries
5.00
Bank
5.00
5.00
Mr. A made an error
√
Bank reconciliation & Reconciling Items
Reconciling Items
•
•
•
•
•
•
Unrecorded deposits
Unpresented cheques
Business errors and Bank errors (rare)
Bank Transfer /EFT
Bank Interest earned
Bank charges
Case Study
Bella needs to buy a
beautiful prom dress for
the prom night.
Mr John Brown is a
fantastic tailor and he
owns a neighbourhood
dress shop.
Bella decides to purchase
a custom made dress
which cost her $700.
Unrecorded deposits
Bella gave John a cheque of $700.
John entered this transaction into his cash
receipts journal.
At the end of the day, he deposited the
cheque into his bank account.
John’s bank did not have a chance to process the
cheque; and the bank statement has already been
prepared.
Unrecorded deposits
Receipts that have been recorded in the cash
receipts journal and taken to the bank at the
end of the day; but at that time the bank
statement has been prepared; and the bank
have not processed those receipts.
Unpresented cheques
John ordered some silk cloth from Jay
Enterprise to make Bella’s prom dress.
He wrote a cheque of $200 to Jay
Enterprise and sent it by mail.
He entered this transaction into his cash payments
journal.
John’s bank statement has already been prepared,
but the cheque has not been presented for payment
at the bank.
Unpresented cheques
Cheques that have been written, sent and
recorded in the cash payments journal; but at
that time the bank statement has been
prepared; and the cheques have not been
presented for payment at the bank.
Bank Statement
Date
01/04/2012
04/04/2012
05/04/2012
09/04/2012
11/04/2012
15/04/2012
16/04/2012
17/04/2012
17/04/2012
18/04/2012
20/04/2012
23/04/2012
26/04/2012
30/04/2012
30/04/2012
Particulars
Debits
Credits
Balance brought forward
C/c
2,300.00
276
1,200.00
C/c
500.00
277
2,800.00
Monthly service charge
10.00
Interest
6.00
278
1,500.00
Fee - overdrawn account
30.00
C/c
200.00
C/c
2,400.00
C/c
200.00
279
2,000.00
Returned Cheque - Nancy
200.00
Fee - returned cheque
25.00
Balance
2,565.00 CR
4,865.00 CR
3,665.00 CR
4,165.00 CR
1,365.00 CR
1,355.00 CR
1,361.00 CR
139.00 DR
169.00 DR
31.00 CR
2,431.00 CR
2,631.00 CR
631.00 CR
431.00 CR
406.00 CR
C/c = Cash and Cheques deposited
Cash receipts journal (DR)
Date
Particulars
3/04/2012 Angel Bridal Shop
8/04/2012 Wendy
17/04/2012 Nancy
19/04/2012 Kelly Fashion
22/04/2012 Sewing equipment
30/04/2012 Bella
Rec no.
128
CRR
129
130
CRR
131
Debtors
2,300.00
Sundries
500.00
200.00
2,400.00
200.00
700.00
5,600.00
CRR = Cash register roll - money received over the counter.
Cash sales
500.00
200.00
Bank
2,300.00
500.00
200.00
2,400.00
200.00
700.00
6,300.00
Bank Statement
Date
01/04/2012
04/04/2012
05/04/2012
09/04/2012
11/04/2012
15/04/2012
16/04/2012
17/04/2012
17/04/2012
18/04/2012
20/04/2012
23/04/2012
26/04/2012
30/04/2012
30/04/2012
Particulars
Debits
Credits
Balance brought forward
C/c
2,300.00
276
1,200.00
C/c
500.00
277
2,800.00
Monthly service charge
10.00
Interest
6.00
278
1,500.00
Fee - overdrawn account
30.00
C/c
200.00
C/c
2,400.00
C/c
200.00
279
2,000.00
Returned Cheque - Nancy
200.00
Fee - returned cheque
25.00
Balance
2,565.00 CR
4,865.00 CR
3,665.00 CR
4,165.00 CR
1,365.00 CR
1,355.00 CR
1,361.00 CR
139.00 DR
169.00 DR
31.00 CR
2,431.00 CR
2,631.00 CR
631.00 CR
431.00 CR
406.00 CR
C/c = Cash and Cheques deposited
Cash payments journal (CR)
Date
Particulars
4/04/2012 Rent
10/04/2012 Sewing machine
16/04/2012 Natalie - employee
25/04/2012 AB Fabric Pty Ltd
30/04/2012 Jay Enterprise
Chq no.
276
277
278
279
280
Creditors Cash Purchases
Wages
2,800.00
1,500.00
2,000.00
200.00
2,200.00
2,800.00
1,500.00
Rent
Sundries
Bank
1,200.00
1,200.00
2,800.00
1,500.00
2,000.00
200.00
1,200.00
7,700.00
Bank Statement
Date
01/04/2012
04/04/2012
05/04/2012
09/04/2012
11/04/2012
15/04/2012
16/04/2012
17/04/2012
17/04/2012
18/04/2012
20/04/2012
23/04/2012
26/04/2012
30/04/2012
30/04/2012
Particulars
Debits
Balance brought forward
C/c
276
1,200.00
C/c
277
2,800.00
Monthly service charge
10.00
Interest
278
1,500.00
Fee - overdrawn account
30.00
C/c
C/c
C/c
279
2,000.00
Returned Cheque - Nancy
200.00
Fee - returned cheque
25.00
Credits
2,300.00 √
500.00 √
6.00
200.00 √
2,400.00 √
200.00 √
Balance
2,565.00 CR
4,865.00 CR
3,665.00 CR
4,165.00 CR
1,365.00 CR
1,355.00 CR
1,361.00 CR
139.00 DR
169.00 DR
31.00 CR
2,431.00 CR
2,631.00 CR
631.00 CR
431.00 CR
406.00 CR
C/c = Cash and Cheques deposited
Cash receipts journal (DR)
Date
Particulars
3/04/2012 Angel Bridal Shop
8/04/2012 Wendy
17/04/2012 Nancy
19/04/2012 Kelly Fashion
22/04/2012 Sewing equipment
30/04/2012 Bella
CRR = Cash register roll - money received over the counter.
Rec no.
128
CRR
129
130
CRR
131
Debtors Cash sales Sundries
2,300.00
500.00
200.00
2,400.00
200.00
700.00
5,600.00
500.00
200.00
Bank
2,300.00
500.00
200.00
2,400.00
200.00
700.00
6,300.00
√
√
√
√
√
Bank Statement
Date
01/04/2012
04/04/2012
05/04/2012
09/04/2012
11/04/2012
15/04/2012
16/04/2012
17/04/2012
17/04/2012
18/04/2012
20/04/2012
23/04/2012
26/04/2012
30/04/2012
30/04/2012
Particulars
Debits
Balance brought forward
C/c
276
1,200.00
C/c
277
2,800.00
Monthly service charge
10.00
Interest
278
1,500.00
Fee - overdrawn account
30.00
C/c
C/c
C/c
279
2,000.00
Returned Cheque - Nancy
200.00
Fee - returned cheque
25.00
Credits
2,300.00 √
√
500.00 √
√
6.00
√
200.00 √
2,400.00 √
200.00 √
√
Balance
2,565.00 CR
4,865.00 CR
3,665.00 CR
4,165.00 CR
1,365.00 CR
1,355.00 CR
1,361.00 CR
139.00 DR
169.00 DR
31.00 CR
2,431.00 CR
2,631.00 CR
631.00 CR
431.00 CR
406.00 CR
C/c = Cash and Cheques deposited
Cash payments journal (CR)
Date
Particulars
4/04/2012 Rent
10/04/2012 Sewing machine
16/04/2012 Natalie - employee
25/04/2012 AB Fabric Pty Ltd
30/04/2012 Jay Enterprise
Chq no. Creditors Cash Purchase
276
277
2,800.00
278
279
2,000.00
280
200.00
2,200.00
2,800.00
Wages
Rent Sundries
1,200.00
1,500.00
1,500.00
1,200.00
-
Bank
1,200.00
2,800.00
1,500.00
2,000.00
200.00
7,700.00
√
√
√
√
Cash receipts journal (DR)
Date
Particulars
Rec no. Debtors
Cash sales
Sundries
Bank
3/04/2012
Angel a
Bridal
Shop
2,300.00
As
you add
transaction,
put a128
tick 2,300.00
beside it in the bank
8/04/2012 Wendy
CRR
500.00
500.00
statement,
cash receipts journal and cash payments journal.
16/04/2012
Interest
6.00 It 6.00
17/04/2012
Nancy
200.00
indicates
that the those missing129entries
have been recorded. 200.00
19/04/2012 Kelly Fashion
130
2,400.00
2,400.00
22/04/2012 Sewing equipment
CRR
200.00
200.00
30/04/2012 Bella
131
700.00
700.00
30/04/2012 Returned Cheque - Nancy
(200.00)
(200.00)
5,400.00
500.00
206.00 6,106.00
√
√
√
√
√
√
√
Cash payments journal (CR)
Date
Particulars
4/04/2012 Rent
10/04/2012 Sewing machine
15/04/2012 Monthly Service charge
16/04/2012 Natalie - employee
17/04/2012 Fee - overdrawn account
25/04/2012 AB Fabric Pty Ltd
30/04/2012 Jay Enterprise
30/04/2012 Fee - returned cheque
Chq no. Creditors Cash Purchases
276
277
2,800.00
Wages
Rent Sundries
1,200.00
10.00
278
1,500.00
30.00
279
280
2,000.00
200.00
2,200.00
2,800.00
1,500.00
1,200.00
25.00
65.00
Bank
1,200.00
2,800.00
10.00
1,500.00
30.00
2,000.00
200.00
25.00
7,765.00
√
√
√
√
√
√
√
Cash balance summary as at 30 April 2012
Opening balance
$
2,565.00
Add cash receipts
6,106.00
Less cash payments
7,765.00
Closing balance
Opening balance from bank
statement
Total from cash receipts
journal
Total from cash payments
journal
906.00
MATCH
Bank reconciliation statement as at 30 April 2012
Balance as per bank statement
$
406.00
Closing balance from bank
CR statement
Add Unrecorded deposit
700.00
Item circle/ highlight from
cash receipts journal
Less Unpresented cheques
200.00
Item circle/ highlight from
cash payments journal
Balance as per business cash records
906.00
CR