Extra Lecture Note
Bank Reconciliation Statement
RECONCILIATION OF BANK BALANCES
Schedule explaining any differences between the bank’s
and the company’s records of cash.
Reconciling Items:
1. Deposits in transit.
2. Outstanding checks.
3. Bank charges
Time Lags
4. Bank credits.
5. Bank or depositor errors.
LO 10
Reconciling items
• Deposit in Transit
• Outstanding checks
End-of-month deposits of cash
recorded on the depositor’s
book in one month are
received and recorded by the
bank in the following month.
Checks written by the
depositor are recorded when
written but may not be
recorded by (may not “clear”)
the bank till the next month.
Reconciling items
• Bank charges
• Not Sufficient Fund (NSF)
Charges recorded by the bank
against the depositor’s balance
for such items as bank services,
printing checks, Not-sufficient
funds (NSF) checks, and safedeposit box rentals. The
depositor may not be aware of
these charges until the receipt
of bank statement.
NSF checks. The bank may
have rejected some of your
deposited checks, because
the person or business
issuing the checks did not
have sufficient funds in their
account(s) to remit to your
bank. These are known
as NSF (not sufficient funds)
checks.
Reconciling items
• Bank Credits
Collection or deposits by the
bank for the benefit of the
depositor that may be
unknown to the depositor until
receipt of bank statement.
Example are note collection for
the depositor and interest
earned on interest-bearing
checking accounts.
• Bank or Depositor
Errors.
Errors on either the part of the
bank or the part of the
depositor cause the bank
balance disagree with
depositor’s book balance.
Reconciling items
• Direct debit payments
• Standing order payments
This is an instruction by the
business to the bank to make
direct payments for amount
owing to certain suppliers)
This is an instruction by the
business to the bank to make
certain fixed amount of
payment every month, such as
insurance, rental, loan
repayment installment.
Reconciling items
• Credit transfer
Which amount paid by
customers directly through
bank transfer.
RECONCILIATION OF BANK BALANCES
ILLUSTRATION 7A-1
Bank Reconciliation
Form and Content
LO 3
Control Features: Use of a Bank
Reconciliation Procedures
+ Deposit in Transit
+ Notes collected by bank
-
-
NSF (bounced) checks
-
Check printing or other
service charges
Outstanding Checks
+/- Bank Errors
+/- Company Errors
CORRECT BALANCE
CORRECT BALANCE
LO 3 Prepare a bank reconciliation.