Bank Reconciliation Statement

? e purpose of t e bank reconciliation

statement
Ô Due to t e timing difference, omissions and
errors made by t e bank or t e firm itself.
Ô ? e balance of t e bank statement and t e bank
account in t e cas book rarely agree.
Ô Bank reconciliation statements can be used
Ô ?o explain t e reasons for t e differences and to
identify errors and omissions in bot documents,
so t at corrections can be made as soon as
possible.
Reasons for differences between t e cas
book balance and t e bank statement
balance
1. Uncredited items
? ey are deposits paid into t e bank. ? ese
items occurred too close to t e cut-off date of
t e bank statement and so do not appear on
t e statement. ? ey will appear on t e next
statement.



 





 
 


 


. Unpresented c eques
? ey are c eques issued by t e firm t at ave not
yet been presented to its bank for payment.
3. Standing orders
? ey are standing instructions from t e firm to
t e bank to make regular payments.
4. Direct debits
? ey are payments made directly t roug t e
bank.
5. Bank c arges
? ey are c arges made by t e bank to t e
company for banking services used.
. Dis onoured c eques
? ey are c eques deposited but subsequently
returned by t e bank due to t e failure of t e
drawer to pay.
7. Credit transfers / direct credits
? ey are money received from customers
directly t roug t e banking system.
8. Interest allowed by t e bank
? ey are interest received for deposits or fixed
deposits.
ature of t e cas book and bank
statement
Cas Book (bank column only)

Debit represents an increase Credit represents an decrease

Bank Statement
Dr Cr Balance

(represents (represents (represents

decrease) increase) t e amount
owned to
t e clients)
Drawing up a bank reconciliation
statement
1. ?o reconcile t e Bank statement wit t e
Corrected Cas Books

. ?o reconcile t e Bank statement wit

Unadjusted Cas Book
 ?o reconcile t e bank statement wit
corrected cas book
? ree steps:
1. C eck t e bank statement and t e cas book
to identify t e items w ic ave been
omitted.

. Update t e cas book wit any omissions and

errors made by t e firm itself.
e.g. Credit transfers (debit cas book)
Bank interest (debit cas book)
Standing orders / direct debits (credit cas book)
Bank c arges (credit cas book)
Dis onoured c eques (credit cas book)
3. Prepare t e bank reconciliation statement
 Bank Reconciliation Statement as at XXXX
$ $
Corrected balance in and as per Cas Book x
Add Unpresented c eques x
Wrong credits by t e bank x x
x
Less Bank deposits not yet entered on Bank Statement x
Wrong debits by t e bank x x
x
(xample 1
 ß 
 Cas book(Bank column)
199 $ 199 $
Dec 1 Bal b/f
800 Dec 8 K Wong 100
3 W Lee 1000
0 C Kwok 700
10 ? C eung
000
9 M ?ang 100
30 S Sin 1400 31 Bal c/f 4800
Uncredited 7
00 Unpresented c eque 7
00
items
Bank Statement
199 Dr Cr Balance
$ $
Dec 1 Balance
800
3 C eque deposit 1000 3800
8 C eque 7343 100

00
10 C eque deposit
000 4
00
11 Dis onoured c eque
000

00
11 Service c arges Bank c arges 30
170
1
Autopay-rent
50 19
0
Direct debit

0 C eque 7344 700 1

0
31 Bank interest 50 1
70
31 Credit transfer-commission received 300 1570
31 Balance 1570
_

Cas Book (Bank Column)
199 $ 199 $

Dec 31 Balance b/f 4,800 Dec 31 ?. C eung ±

31 Commission Rec. 300 Dis onoured c eque
,000
31 Bank Interest 50 31 Bank c arges 30
31 Rent
50
31 Balance c/f
870
5,150 5,150

‡Identify t e items w ic ave been omitted in t e cas book

 Bank Reconciliation Statement as at 31 Dec 199
$
Corrected balance in and as per Cas Book
870
Add Unpresented c eques 100

970
Less Bank deposits not yet entered on Bank Statement 1400

Balance in and as per Bank Statement 1570

‡Only adjusted caused by timing difference

?o reconcile t e bank statement wit t e
Unadjusted cas book
?wo steps :
1. C eck t e bank statement and t e cas book
to identify t e items w ic ave been omitted.

. Prepare t e bank reconciliation statement.
Begin wit t e unadjusted cas book balance
and end wit t e bank statement balance
Bank Reconciliation Statement as at XXXX
$ $
Corrected balance in and as per Cas Book x
Add Credit transfers Amount received on bank statement x
Bank interest But not on bank statement x
Unpresented c eques ?iming difference x
Wrong credits by t e bank x x
Bank error
x
Less Standing orders / direct debits x
Bank c arges x
Dis onoured c eques x
Bank deposits not yet entered on Bank Statement x
Wrong debits by t e bank x x
Balance in and as per Bank Statement x
 (xample

? e facts are t e same as (xample 1, but

t e cas book was not updated.
 _


Bank Reconciliation Statement as at 31 Dec 199

$ $
Corrected balance in and as per Cas Book 4,800
Add Credit transfers 300
Bank interest 50
Unpresented c eques 100 __450
5,
50
Less Bank c arges 30
Dis onoured c eques
,000
Bank deposits not yet entered on Bank Statement 1,400
Direct debit
50 3,80
1,570
 Ot er Issues
A. Post-dated c eque
‡ It is a c eque w ic as not yet matured wit in t e
current accounting period.
Accounting treatment
‡ ? e c eque s ould be eld by t e cas ier and no
entry s ould be made until t e c eque becomes
mature.
‡ If a post-dated c eque as been entered in t e cas
book, make correcting entries.

Dr Debtors
Wit t e amount of t e post-dated c eque
Cr Bank
B. Stale c eque
‡ It is a c eque w ic as been drawn for more
t an  mont s but as not yet gone t roug
t e bank of t e drawee.
Accounting treatment:

Dr Bank
Wit t e amount of t e state c eque
Cr Creditor
C. (rrors made by t e bank
i. (rrors corrected wit in t e current
accounting period
ii. (rrors not corrected wit in t e current
accounting period
‡ (rrors corrected wit in t e current
accounting period
-As t e error as been corrected by t e bank wit in
current accounting period, no adjustment is needed.
( 
Bank Statement
Dr Cr Balance
199 $ $
Dec 1 Balance
40
1 C eque 543
1 5
0
80 O/D

Credit
,000 1,7
0
8 C eque 54
3
1,00 1
0

0 C eque 1074 300 180 O/D

0 Adjsutment
o adjustment 300 1
0
s ould be made
‡ (rrors not corrected wit in t e current
accounting period
(xample 4 :
‡ An amount of $1,000 w ic s ould be
credited into t e owner¶s personal account
was wrongly credited by t e bank to t e
company¶s bank account. ? e balance of t e
cas book is $4,000 and t e balance of t e
bank statement was $5,000 at 31 Dec 199
_


Bank Reconciliation Statement as at 31 Dec 199

$
Balance in and as per Cas Book 4,000
Add wrong credit by t e bank 1,000
5,000

‡As it is an error made by t e bank, no adjustment is needed in t e

company¶s cas book
D. Different opening balances of t e cas
book and t e bank statement
? e following steps s ould be taken:
1. Reconcile t e opening cas book balance wit
t e opening bank statement balance.

. ? e adjusting items for t e opening balances
s ould not appear in t e bank reconciliation
statement of t e current period.
3. Prepare t e bank reconciliation statement.
(xample 5
 ß 
 Cas book(Bank column)
199 $ 199 $
Dec 1 Bal b/f 1000 Dec
Bank c arges( ov) 500

C Lee
800
8 K ?ong-74
1000
8 P Wong 1538
9 C Au-743 1400
31 ? Kong 1300 30 C ina Ltd-744
100
Uncredited 31 Bal c/f 11
38
item 7
00 7
00
Unpresented c eque
Bank Statement
199 Dr Cr Balance
$ $
Dec 1 Balance 11500
Adjusting items for

Credit 1000 1
500
opening balance

Credit
800 15300
3 73
400 1
900
8 Credit 1538 14438

Standing order-rent 4000 10438

4 Service c arges
00 10
38

8 74
1000 9
38
31 Balance 9
38
_


Step 1

Bank Reconciliation Statement as at 1 Dec 199

$ $
Balance in and as per Cas Book 10,00
Add Unpresented c eque
400
13,000
Less uncredited item 1,000
Bank c arges 500 1,500
Balance in and as per Bank Statement 11,500

‡? e adjusting items for t e opening balance s ould not appear in

t e bank reconciliation statement as at 31 Dec 199
Step

Cas Book (Bank Column)

199 $ 199 $
Dec 31 Balance b/f 11,
38 Dec 31 Rent 4,000
31 Service c arges
00
31 Balance c/d 7038

11,
38 11,
38
Step 3

Bank Reconciliation Statement as at 31 Dec 199

$
Corrected balance as per Cas Book 7,038

Add Unpresented c eques ($1,400+$

,100) 3,500
10,538

Less Uncredited item 1,300

Balance in and as per Bank Statement 9,
38
(. Bank overdrafts
W en t ere is a bank overdraft, t e presentation
of t e bank reconciliation statement can be:
a. t e same as t ose needed for a debit balance,
but begins wit a negative figure, or
b. t e opposite of t ose needed for a debit
balance.
(xample 
 ß 
 Cas book(Bank column)
199 $ 199 $
Dec 1 Bal b/f 500 Dec 8 A ?ong 300
 Cas 50 1 ? C an 500
13 C Lee
00
8 ?extile Ltd 490
31 R Wong 390
Uncredited 31 Bal c/d 150 Unpresented c eque
item 1
90 1
90
1997
Jan 1 Bal b/d 150
Bank Statement
199 Dr Cr Balance
$ $
Dec 1 Balance 500
 Cas 50 550
8 A ?ong 300
50
13 C Lee
00 450
1 ? C an 500 50 O/D

9 United ?rust-standing order
70 3
0 O/D
31 Bank c arges 40 30 O/D
31 Balance 30 O/D
_


Cas Book (Bank Column)

199 $ 199 $
Dec 31 Balance c/f 40 Dec 31 Balance b/f 150
31 United trust
70
31 Bank c arges 40

40 40
 Bank Reconciliation Statement as at 31 Dec 199
$
Corrected balance as per Cas Book (Overdraft) (40)
Add Unpresented c eques 490
30

Less Uncredited item 390

Balance as per Bank Statement (overdraft) (30)