BANK
RECONCILIATION
STATEMENTS
Point of Note
This chapter will be a combination of Accounts and Theory
• We already know how to complete cash
accounts and that bank statements include
items such as:
• Bank Charges
• Bank Interest Charged
Important
Refresher
• Standing Orders (S/0)
• Direct Debit
• Paypath
• Credit Transfers
• Dishonoured Cheques
It is important that you remember how to do
a basic cash account and understand these
definitions when working in this chapter
Your Bank A/C
You will be
concerned
with three
accounts
Adjusted Bank Statement
Bank Reconciliation StatementsHere we add lodgements not yet
credited, and subtract cheques not
yet presented for payment.
Bank Reconciliation Statements
THE BANK ACCOUNT (OR THE ANALYSED CASH
BOOK) IS THE ACCOUNT HOLDERS OWN RECORD OF
MONEY RECEIVED AND SPENT
THE BANK STATEMENT IS THE BANKS RECORD OF
MONEY RECEIVED AND SPENT BY THE ACCOUNT
HOLDER. THIS IS VIEWED FROM THE BANKS
PERSPECTIVE
THE BANK RECONCILIATION STATEMENT IS THEN
PREPARED TO RECONCILE (OR FIX) THE TWO
RECORDS AND CHECK FOR ANY ERRORS THAT HAVE
OCCURRED
Why complete a bank reconciliation statement
• Ideally, the banks statement should match your own one, but what if a
cheque written has been delayed or the standing order has not yet been paid
or you have forgotten a direct debit? You would have obviously made
changes to your account but the bank may not have done the same
• So we have to adjust the records and make a bank reconciliation statement
which will:
1. Identify the true balance of the bank account
2. Update your own records with unknown items-those which
appear on the bank statement that you don’t know about
Comparing a
Bank
Statement
and Personal
account
The balance on the bank
statement may be different from
the balance in the personal
account because there is usually
a time difference between
transactions
Entries on the debit side
of the bank statement are
on the credit side of the
personal account and
entries on the credit side
of the personal account
are on the debit side of
the bank account. This is
because every debit has a
credit, and if I debit my
own bank account, the
bank view this money as
money they owe me
which is a credit. (This will
make sense with practice)
Reasons for
differences
between
Bank
Statements
and Your
Bank
Account
1. Cheques written but not yet been cashed- you
have given a cheque to someone but because
they have not cashed it yet it does not show
up in the banks accounts
2. Lodgements made but not yet shown in bank
accounts
3. You are unaware of certain transactions, e.g.
interest
4. Human error can happen-putting in €30
instead of €300
5. Direct Debits and Standing orders that you
forgot about- e.g. a particular phone bill being
€125 and not the usual €40
I know what you’re thinking……
Don’t worry- we will be doing a lot of practice
Illustration: Prepare a bank reconciliation at April 30.
Cash balance per bank statement
Deposit in transit
Outstanding checks
Adjusted cash balance per bank
Cash balance per books
Error in check No. 443
NSF check
Bank service charge
Collection of notes receivable
Adjusted cash balance per books
$15,907.45
2,201.40
(5,904.00)
$12,204.85
$11,589.45
36.00
(425.60)
(30.00)
1,035.00
$12,204.85
SO 5 Prepare a bank reconciliation.
Illustration: Journalize the adjusting entries at April 30
on the books of Laird Company.
Dr.
Apr. 30
Cash
Bank fee expense
Accounts receivable
Cr.
615.40
45.00
425.60
Notes receivable
1,000.00
Interest revenue
50.00
Accounts payable
36.00
SO 5 Prepare a bank reconciliation.
Review Question
The reconciling item in a bank
reconciliation that will result in an adjusting
entry by the depositor is:
a. outstanding checks.
b. deposit in transit.
c. a bank error.
d. bank service charges.
For Help
Please use the additional links to practice
questions and solutions as part of your study
for this chapter that are on the website.
When we have finished this topic, use the
questions we have done in class to also help
you