CHAPTER 10 Bank

reconciliations
Learning outcome
To reconcile bank statements with
the cash records of a business

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-1
KEY TERMS
• Bank charges
• Bank statements
• Need for bank reconciliations
• Bank reconciliation checklist
• Bank statements with a debit balance
• Bank statements with a credit balance
• Dishonoured cheques
• Internal control
• Outstanding receipts and debits

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-2
BANK RECONCILIATION AS AN
INTERNAL CONTROL
• Verifies that balance at bank agrees with
cashbook balance
• Bank statement extracted from bank
records

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-3
ELECTRONIC BANKING
• Direct deposits
─ Payments made directly into a bank account of client

• Direct debits (payments)

─ Payments made by bank on behalf of client

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-4
ELECTRONIC BANKING cont.
Software enables 24-hour electronic:
• payment of creditors and expenses
• payroll transactions
• funds transfers between accounts
• remittance processing

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-5
ELECTRONIC BANKING cont.
Provides access to:
– bank account balances
– bank statements

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-6
BANK RECONCILIATION
• Internal control
• Helps detect errors and/or misappropriations
• Bank statements compared with the cash records of
the business on a regular basis
• Ensures all receipts are properly accounted for and
banked
• Enables recording of bank cheques, direct deposits or
payments and interest

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-7
BANK RECONCILIATION cont.
• Bank statements and bank reconciliations retained as
permanent records
• Identifies cheques in cash payments journal not
presented at bank
• Identifies dishonoured cheques
• Identifies any mathematical errors in cashbooks or
bank statements

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-8
BANK RECONCILIATION
PROCEDURES

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-9
Entries in bank’s accounting records
• The bank’s accounting records show the opposite of what
is entered in the business records.
• When money is received by a business, the amount is
entered in the cash receipts journal. The total of this journal
is then posted as a debit to the Cash at bank ledger
account. The bank will credit the business account on the
bank statement, as it receives the bank or electronic
deposits, as it is a liability to the bank as it owes the money
to the customer.
• When the business draws cheques, the total of the cash
payments journal is credited to the Cash at bank ledger
account. When the cheque is presented the bank will debit
the business account on the bank statement.

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-10
Contents of a bank reconciliation
statement
1. If the bank account shows a credit balance:
• add outstanding deposits; and
• deduct unpresented cheques
This should equal a debit balance as per the Cash at bank ledger
account
2. If the bank account shows a debit balance:
• add unpresented cheques; and
• deduct outstanding deposits
This should equal a credit balance as per the Cash at bank ledger
account

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-11
DISHONOURED CHEQUES
• Drawer has insufficient
funds Date Particulars Discount A/C
Allowed Receivable
Bank

5 O’Rouke 25 520 500

• Cheque unsigned O’Rouke
(Dish)
<25> <525> <500>

• Incorrect or incomplete
information
• Appears as a debit on
bank statement

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-12
RECONCILIATION CHECKLIST
1. Check off items common to both bank statement and
cash books
2. Add to cashbook items on bank statement but not in
cashbooks (e.g. bank charges)
3. Mark outstanding and unpresented items in
cashbooks and not on bank statements
4. List all o/s deposits and unpresented cheques

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-13
RECONCILIATION CHECKLIST cont.
5. Add o/s deposits to bank statement balance and
subtract unpresented cheques if bank statement has
a credit balance
6. Add unpresented cheques and subtract o/s deposits
if bank statement has a debit balance
7. The balance calculated should equal cashbook
balance

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-14
Entries in bank’s accounting records
The bank’s accounting records show the opposite of what is
entered in the business records:
– When money is received by a business, the amount is
entered in the cash receipts journal
– The total of this journal is subsequently posted as a debit
to the Cash at bank ledger account
– The bank will credit the business account on the bank
statement when the deposit is received
– When the business draws cheques, the total cash
payments journal is credited to the Cash at bank ledger
account
– When a cheque is presented, the bank will debit the
business account on the bank statement

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-15
Contents of bank reconciliation statement
• If the bank account shows a credit balance:
– add outstanding deposits; and
– deduct unpresented cheques
• This should equal a debit balance as per the Cash at
bank ledger account
• If the bank account shows a debit balance:
– add unpresented cheques; and
– deduct outstanding deposits
• This should equal a credit balance as per the Cash at
bank ledger account

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd 10-16