Bank
Reconciliation
Chapter 8
What do you know
about Bank
Reconciliation?
Bank Reconciliation is process compare between the bank statement
and cash book record ( business record ) to make sure the amount from
the bank statement and cash book record are the same amount. This will
help determine if the accounting changes needed, help detect fraud and
any cash manipulations.
What is bank statement and the purpose?
• Bank statement is a copy of monthly
statement from the bank that show
business activity from the beginning of
the month till the end of the month on
the period.
• Bank statement help to make bank
reconciliation.
• Bank statement is maintain using the
running balance method
How to
read Bank
Statement
Debit for bank= Credit in
Cash book account
Credit for bank= Debit in
Cash book account
Reason why
balance from bank
statement with the
Business record
might not be the
same
Transaction that record by
bank but not by the business
a)
Bank Charges and Bank Interest- bank
will charge some fee to customer bank
account.(E.X-fee for maintaining the
account/interest on lone and overdraft)
b)
Standing order- Business can order bank
to pay other organization / individual on
a stated date with a fixed amount ( E.Xannual insurance premium / monthly
loan payment)
Transaction that record
by bank but not by the
business
a)
Direct Debit- Business can order bank to
pay the creditor on a stated date with a
vary amount each month. ( E.X.
Electricity/ water bill)
b)
Dishonored Cheque-Cheque that
rejected by the bank with some reason.
c)
Electronic direct payment-now business
can direct transfer some money from
one bank to the other via internet. This
condition might record by the bank on
that day but not by the business or the
reversal
Transaction that
record by
business but not
by the bank
a) Uncredited deposit/ amount not yet
credited- when the business get cheque
from the account receivable and paid to the
bank. The business will record cash book
account. However the bank haven't cleared
and record in bank ( uang yang seharusnya
kita terima , tp belom di cairkan ) - A.R
( cash book – debit // bank statement – credit )
a)
Unpresented cheque/ Cheque not yet
presented- delay in clearing the cheque, but
the business already record the transaction
as the date state in the cheque( supplier
blm masukin cheque ke bank – sehinggga
belom ada pencairan ) A.P
( cash book – credit // bank statement – debit )
Errors
•
Balance in bank account and the bank
column in cash book is not balance
because of errors.
•
Error by by:
a)
the business-error should be corrected
as soon as the business discovered
b) by the bank- the bank should be
notified as soon as possible when
there are error
• Most business wait till they receive a statement from
the bank before balancing the cash book
Updating
the cash
book
• Step to balance the cash book:
a)
Compare the bank statement with bank in the cash
book column
b)
Debit in cash book= Credit in bank statement//
Credit in cash book= Debit in bank statement
c)
if entries appears in the both account than put in a
tick, if entries that not appears in both account
than give a circle.
d)
Entries that appears in bank statement , but not in
cash book than need to be updated the cash book
Example question for update cash
book
Date
2019
Jan-01
10
16
Details
Bal b/d
Jones
S. Mary
Cash book ( bank columns only)
$
Date
2019
3000
Jan-02
500
14
450
31
3950
Details
$
C Meena
James
Bal c/d
500
100
3350
3950
Bank Statement
2019
withdrawals
Deposits
Balance
$
$
$
Jan 1
Balance b/d
3000
4
10987 ( c Meena)
13
Jones
16
James
17
Credit transfer received
400
3300
18
S.Mary
450 ( cr bs= dr cb)
3750
31
Bank charges
500
2500
500
100
100
3000
2900
3650
1. We need to Compare the bank
statement with bank in the cash book
column
Note:
Debit in cash book= Credit in bank
statement// Credit in cash book= Debit
in bank statement
Date
2019
Jan-01
10
16
Details
Bal b/d
Jones
S. Mary
Cash book ( bank columns only)
$
Date
2019
3000
Jan-02
500
14
450
31
3950
Details
$
C Meena
James
Bal c/d
500
100
3350
3950
Bank Statement
2019
withdrawals
Deposits
Balance
$
$
$
Jan 1
Balance b/d
3000
4
10987
13
Jones
16
James
17
Credit transfer received
400
3300
18
S.Mary
450
3750
31
Bank charges
500
2500
500
100
100
3000
2900
3650
2. if entries appears in the both account than
put in a tick, if entries that not appears in both
account than give a circle.
Date
2019
Jan-01
13
Details
Bal b/d
Jones
V
V
18
S. Mary
v
Cash book ( bank columns only)
$
Date
Details
2019
3000
Jan-04
C Meena
500
16
James
450
31
Bank Statement
3950
withdrawals
2019
$
Jan 1
Balance b/d
v
4
10987
V
13
Jones
V
16
James
V
17
Credit transfer received
18
S.Mary
31
Bank charges
Bal c/d
$
V
V
v
Deposits
Balance
$
$
3000
500
2500
500
100
V
100
3000
2900
400
3300
450
3750
3650
500
100
3350
( yg di pakai
untuk update
cb)
3950
3. Entries that
appears in bank
statement , but not
in cash book than
need to be updated
the cash book
Date
2019
Feb 1
Feb 1
Update cash book ( bank columns only)
Details
$
Date
Details
2019
Balance b/d
3350
Credit transfer
received
400
Balance b/d
• Note:
• it’s update in the first month after we get the bank statement,
so the date will be the first date of the month
• Balance b/d in the firs column in debit will be taken from the
Cash book c/d that haven’t updated.
3750
3650
Feb 1 Bank Charges
Balance c/d
$
100
3650
3750
Bank reconciliation
statement
• If there are circle in cash book account, then we need to make the bank
reconciliation.
• This reconciliation explain the difference between cash book and the balance on
the bank statement.
• Step by step to make bank reconciliation:
a)
Compare the bank statement with bank in the cash book column
b)
Debit in cash book= Credit in bank statement// Credit in cash book= Debit in bank
statement
c)
if entries appears in the both account than put in a tick, if entries that not appears
in both account than give a circle.
d)
we still need to update the cash book account first using the step by step update
cash book
e)
After we found the circle in cash at bank statement, then we need to make letter
to notify the bank
f)
There will be 2 template. –using cash at bank as cash book /balance as bank
statement
Example question for Bank Reconciliation
• Information given as at 31 December
2018:
• Cash at bank as per updated cash
book $750
• Unpresented cheques $250
• Cheques paid into the bank but not
yet entered in the bank statement
$160
• Cash at bank as per bank statement
$840
1. We need to update the cash book
Note: we skip the step by step update
cash book, because in this question
they already give us the cash at bank
per updated cash book
2. After we found the circle in cash at bank in cash book, then we need to make
letter to notify the bank
Note: In this question they already provide everything.
3.Make the Bank reconciliation.
Note: Choose within begin with
cash bank as per cash book /
balance as per bank statement.
1. Cash at bank as per updated cash book $750
2. Unpresented cheques $250
3. Cheques paid into the bank but not yet entered in the
bank statement $160
4. Cash at bank as per bank statement $840
Start with the Cash at
bank as per updated
cash book
Bank reconciliation statement as at 31 December 2019
$
Cash book
750
Add: Unpresented cheques
250
(cr – cb = dr b.s  dr berarti bertambah di bank statement)
1000
Less: Uncredited deposits not entered in cash book
( dr – cb = cr- b.s ( berkurang untuk bank statement)
This balance
Cash at bank as per bank statement
should agree with
Add everything in
the balance on the
credit side of the cash
bank statement
book
160
840
Deduct everything
in debit side on the
cash book
Example
question for
update both
account
The leather trader
Cash book ( Bank columns only)
Date
Detail
$
June 2018
Date
Detail
$
June 2018
1
Balance b/d
7900
3
S.Koh Ltd- Supplies
1500
8
P. Masters
500
4
C.patel- repairs
410
15
Sales
1900
16
P. Saghir- Cleaning
230
28
J.Kasim
200
21
T.afzal- Supplier
800
30
K.Bandara
24
Hightec- It. Service
140
30
Sales
600
1220
28
Telcel- Telepone
300
30
Balance c/d
8940
12320
Jul 1
Balance b/d
8940
12320
Dr cash book = cr bank statement
The Leather Trader
Bank Statement
Date
Detail
June 2018
Debit
Credit
Balance
$
$
$
1
Balance
7900 CR
9
Deposit ( p. masters)
12
Cheque NO.6211 ( c. patel )
410 V
7990
17
Credit transfer ( p. saghir)
230 V
7760
18
Deposit ( sales)
1900 V
9660
18
Interest
60
9720
20
Dividends Received
100
9820
26
Deposit ( j. kasim )
200 V
10020
28
Credit transfer received
760
10780
29
Cheque No. 6213 ( hightec)
140 V
10640
29
Cheque No. 6210 ( s.koh)
1500 V
9140
30
Direct Debit
700
8440
30
Standing order
250
8190
30
Bank Charge
30
8160  di pakai u/
bank recon
500 V
8400
1. We need to Compare the bank statement with bank in the cash book column
Note:
Debit in cash book= Credit in bank statement// Credit in cash book= Debit in bank statement
2. if entries appears in
the both account than
put in a tick, if entries
that not appears in
both account than give
a circle.
The leather trader
Cash book ( Bank columns only)
Date
Detail
$
June
2018
Date
Detail
$
June 2018
1
Balance b/d
7900
3
S.Koh Ltd- Supplies
V
1500
8
P. Masters
V
500
4
C.patel- repairs
V
410
15
Sales
V
1900
16
P. Saghir- Cleaning
V
230
28
J.Kasim
V
200
21
T.afzal- Supplier
30
K.Bandara
24
Hightec- It. Service
30
Sales
600
1220
28
Telcel- Telepone
300
30
Balance c/d
8940
12320
Jul 1
Balance b/d
8940
800
V
140
12320
The Leather Trader
Bank Statement
Date
Detail
June 2018
Debit
Credit
Balance
$
$
$
1
Balance
V
7900 CR
9
Deposit
V
12
Cheque NO.6211
V
410
7990
17
Credit transfer
V
230
7760
18
Deposit
V
18
500
8400
1900
9660
Interest
60
9720
20
Dividends Received
100
9820
26
Deposit
200
10020
28
Credit transfer received
760
10780
29
Cheque No. 6213
V
140
10640
29
Cheque No. 6210
V
1500
9140
30
Direct Debit
700
8440
30
Standing order
250
8190
30
Bank Charge
30
8160
V
Entries that not
correspond
• In cash book but not in Bank statement.
1.
Uncredited deposit- K.Bandara $600 & Sales $1.220
2.
Unpresented Cheques- T. Afzal $800 & Telcel $300
•
In Bank Statement but not in cash book.
1.
Interest received $60
2.
Dividends received $100
3.
A credit transfer received of $760
4.
A direct debit payment (guard insurance )$700
5.
Standing order $250
6.
Bank Charges deducted $30
The leather trader
Update Cash book ( Bank columns only)
Date
Detail
$
2018
Jun 30
Date
Detail
$
Guard insurance
700
2018
Bal b/d
8940
Jun 30
Interest Received
60
Standing Order
250
Dividends Received
100
Bank Charges
30
Cr transfer Received
760
Balance c/d
8880
9860
Jul 1
Balance b/d
Balance B/d from cash
book that haven’t
updated
9860
8880
The updated cash book
balance. we will use this
balance for adjust Bank
statement if we use cash at
bank per cash book
4. Update Bank Reconciliation.
Note: Choose within begin with cash bank as per
cash book / balance as per bank statement.
In cash book but not in Bank statement.
1. Uncredited deposit- K.Bandara $600 & Sales $1.220
2. Unpresented Cheques- T. Afzal $800 & Telcel $300
Bank reconciliaiton use balance as per cash book
The Leather Trader
Add everything in
Bank reconciliation statement as at 30 June 2018
Start with the Cash at
credit side of the cash
$
bank as per updated
book
cash book
Balance as per update cash book
8880
( bukan pakek 8.940 tapi
8.880 sesuai update cash
book )
Add: Unpresented cheques  dr bank statement
T.Afzal
800
Telcel
300
1100
9980
Less: Uncredited deposits not entered in cash book
 credit bank
K.Bandara
600
Sales
1220
Cash at bank as per bank statement
1820
840
Deduct everything in debit
side on the cash book
This balance
should agree with
the balance on the
bank statement
In cash book but not in Bank statement.
1. Uncredited deposit- K.Bandara $600 & Sales $1.220
2. Unpresented Cheques- T. Afzal $800 & Telcel $300
Bank reconciliaiton use balance as per bank statement
Add everything in debit
side on the cash book
The Leather Trader
Bank reconciliation statement as at 30 June 2018
$
Balance as per bank statemen
8160
Start with balance as
bank statement
Add: Uncredited deposits not entered in cash
book
K.Bandara
600
Sales
1220
1820
9980
Deduct everything in credit
side of the cash book
Less: Unpresented cheques
T.Afzal
800
Telcel
300
Cash at bank as per updated cash book
1100
8880
This balance
should agree with
the balance Cash
book
Treatment of Errors committed in cash book/
bank statement
• Error should correct before prepare the bank reconciliation.
• Error made by the bank:
Error by the bank
What do we do?
In Debit side
Deduct from balance as per cash book
In Credit side
Added to balance as per cash book
• Error made by the business in the cash book:
Error resulted in
What should we do?
Credit total being understated
Credit side need to update on the cash book
Debit total being understated
Debit side need to update on the cash book
Example question
for update cash
book
Date
2018
Jun 1
11
20
25
Balakrishna
Cash book ( bank columns only)
$
Date
Details
2018
5000
Jun 15
Malti
550
26
Dolly
150
29
Moon
460
30
Balance c/d
6160
Details
Balance b/d
Cash Sales
S. Stanson
Blosom
$
2000
250
300
3610
6160
Balakrishna
Add info:
- Balakrishna discovered that he
made an error in the 11 June
entry. The amount should have
been $150 and not $550 as
recorded in the cash book.
Bank Statement
Date
Detail
2018
Debit
Credit
Balance
$
$
$
Jun 1
Balance
5000 CR
11
Cash
17
Malti
22
S. Stanson
26
Dolly
28
Insurance Premium 50
3000
29
Bank Charges
2950
150
2000
3150
150
250
50
5150
3300
3050
1. We need to Compare the bank statement with bank in the cash book column
Note:
Debit in cash book= Credit in bank statement// Credit in cash book= Debit in bank statement
Date
2018
Jun 1
11
20
25
Details
Balance b/d
Cash Sales
S. Stanson
Blosom
Balakrishna
Cash book ( bank columns only)
$
Date
Details
2018
5000
Jun 15
Malti
550
26
Dolly
150
29
Moon
460
30
Balance c/d
6160
$
2000
250
300
3610
6160
Balakrishna
Add info:
- Balakrishna discovered that he
made an error in the 11 June
entry. The amount should have
been $150 and not $550 as
recorded in the cash book.
Bank Statement
Date
Detail
2018
Debit
Credit
Balance
$
$
$
Jun 1
Balance
5000 CR
11
Cash
17
Malti
22
S. Stanson
26
Dolly
28
Insurance Premium 50
3000
29
Bank Charges
2950
150
2000
3150
150
250
50
5150
3300
3050
2. if entries appears in the both account than put
in a tick, if entries that not appears in both
account than give a circle.
Date
2018
Jun 1
11
20
25
Balakrishna
Cash book ( bank columns only)
$
Date
Details
2018
5000
Jun 15
Malti
550
26
Dolly
150
29
Moon
460
30
Balance c/d
6160
Details
Balance b/d
Cash Sales
S. Stanson
Blosom
V
V
v
$
V
V
2000
250
300
3610
6160
Balakrishna
Add info:
- Balakrishna discovered that he
made an error in the 11 June
entry. The amount should have
been $150 and not $550 as
recorded in the cash book.
Bank Statement
Date
Detail
2018
Jun 1
Balance
V
11
Cash
V
17
Malti
V
22
S. Stanson
26
Dolly
28
29
Debit
Credit
Balance
$
$
$
5000 CR
150
2000
3150
150
V
5150
3300
250
3050
Insurance Premium
50
3000
Bank Charges
50
2950
Entries that not correspond
• In cash book but not in Bank statement.
1.
Uncredited deposit-Blossom $460
2.
Unpresented Cheques-Moon $300
•
In Bank Statement but not in cash book.
1.
Insurance premium $50
2.
Bank Charges $50
3. Entries that appears in bank
statement , but not in cash
book than need to be updated
the cash book
Balakrishna
Update Cash book ( Bank columns only)
Date
Detail
$
2018
Jul 1
Date
$
Insurance Premium
50
Bank Charges
50
Correction of error
400
Balance c/d
3110
2018
Balance b/d
3610
Jul 1
3610
Jul 1
Detail
Balance b/d
Balance B/d from cash
book that haven’t
updated
3610
3110
The updated cash book
balance. we will use this
balance for adjust Bank
statement if we use cash at
bank per cash book
This amount is correction from
11 June entry that Cash sale
false record.
4. Update Bank Reconciliation.
Note: Choose within begin with cash bank as per cash book / balance as per bank
statement.
In cash book but not in Bank statement.
1. Uncredited deposit-Blossom $460
2. Unpresented Cheques-Moon $300
Bank reconciliaiton use balance as per cash book
Add everything in
credit side of the cash
book
The Leather Trader
Bank reconciliation statement as at 30 June 2018
Balance as per Cash book
$
3110
Add: Unpresented cheques
Moon
Start with balance
ase per updated cash
book
300
3410
Less: Uncredited deposits not entered in cash
book
Deduct everything in debit
side on the cash book
Blossom
460
Cash at bank as per Bank statemen
2950
This balance
should agree with
the balance on the
bank statement
In cash book but not in Bank statement.
1. Uncredited deposit-Blossom $460
2. Unpresented Cheques-Moon $300
Bank reconciliaiton use balance as per bank statement
Add everything in debit
side on the cash book
The Leather Trader
Bank reconciliation statement as at 30 June 2018
$
Balance as per bank statement
2950
Add: Uncredited deposits not entered in cash
book
Blossom
Start with the
Balance in bank
statement
460
3410
Deduct everything in credit
side of the cash book
Less: Unpresented cheques
Moon
300
Cash at bank as per Cash statement
3110
This balance
should agree with
the balance Cash
book
Bank reconciliation statement and bank overdraft
• Overdraft means overdrawing( take money more than you have in
bank) of a bank. account. It is the nature of a loan granted by the
bank
• Position statement:
Bank statement
Cash book account
Debit balance
Credit balance
• For update- same as update the bank reconciliation.
Start with balance as per
cash book
Uncredited deposit
add
Unpresented deposit
less
Example question for bank reconciliation for overdraft
• On 31 March 2018, Edward, a trader, had a credit balance of
$1,250in the bank column of his cash book. This differed from
the balance on his bank statement due to the following reasons:
• Unpresented cheque amounting to $2,450
• Uncredited deposits amounting to $500 was not credited to
his account in the bank statement
Because the question already state the unpresented cheques and
uncredited deposit. So we don’t need to make update the cash book
Bank reconciliation use balance as per cash book
• In cash book but not in Bank
statement.
• Unpresented cheque amounting
to $2,450
• Uncredited deposits amounting to
$500 was not credited to his account
in the bank statement
The Leather Trader
Bank reconciliation statement as at 30 June 2018
$
Balance as Cash at bank as per update cash
book
1250 (O/D)
Add: Unpresented cheques
500
1750
Less: Uncredited deposits not entered in
cash book
2450
Cash at bank as per bank statement
700 (Cr)