Professional Documents
Culture Documents
Bank reconciliation
Contents
Bank reconciliations
The bank statement
Procedures for performing a bank
reconciliation
Reconciliations on a computerised system
Bank reconciliations
A bank reconciliation compares the
balance of cash in the business's records
to the balance held by the bank.
Differences will be errors or timing
differences, and they must be identified
and satisfactorily explained.
The bank statement
Sent by a bank to its short-term receivables
and payables (customers with bank
overdrafts and customers with money in
their accounts) itemising
The balance on the account at the beginning of
the period
Receipts into the account
Payments from the account during the period
And the balance at the end of the period.
These statements may be produced monthly,
weekly or even daily depending on the volume
of transactions going through the account.
Proforma bank reconciliation
Example
At 30 September 20X7 the debit balance in the cash book
of Wordsworth was $805.15. A bank statement on 30
September 20X7 showed Wordsworth to be in credit by
$1,112.30.
On investigation of the difference between the two sums,
the following items were established.
(a) The cash book had been undercast by $90.00 on the
debit side.
(b) Cheques paid in not yet credited by the bank
amounted to $208.20.
(c) Cheques drawn not yet presented to the bank
amounted to $425.35.
We need to show the correction to the cash book and
show a statement reconciling the balance per the bank
statement to the balance in the cash book.
Answer
Example
Answer
The difference between the opening bank balance at 1
February per the cash book of $922.22 and the opening
balance at 1 February per the bank statement of $1,057.62
CR is explained by the cheque number 800119 which was
recorded in the cash book in January and presented on 7
February.
Reconciliation
Example
At your firm, Precision Products, a new trainee has been asked to
prepare a bank reconciliation statement as at the end of October
20X7. At 31 October 20X7, the company's bank statement shows
an overdrawn balance of $142.50 DR and the cash book shows a
favourable balance of $24.13.
You are concerned that the trainee has been asked to prepare the
statement without proper training for the task. The trainee prepares
the schedule below and asks you to look over it.
The trainee says that he was not able to reconcile the
difference completely, but was pleased that he was
able to 'get it down' to $1.50. He feels that there is no
need to do any more work now since the difference
remaining is so small. He suggests leaving the job on
one side for a week or so in the hope that the
necessary information will come to light during that
period.
Tasks
(a) So that you can show the trainee how a bank
reconciliation ought to be performed, prepare:
(i) a statement of adjustments to be made to the cash book
balance
(ii) a corrected bank reconciliation statement as at 31
October 20X7
(b) Explain to the trainee why it is important to prepare
Answer
(b) (i) The company's records should be updated for the bank correct
balance.
(ii) Errors should be identified and corrected as soon as possible
(iii) A better understanding of such timing differences will help managers
to improve their cash planning.
Example
You have been asked to prepare the monthly bank reconciliation as
at 30 November 20X6 for your company Mentor Trading Ltd. The
company's bank statement shows a credit balance of $1,698.50
and the cash book an overdrawn balance of $460.50.
During your investigation you discover the following:
• Overdraft interest of $24.60 in the bank statement, not yet
posted to cash book
• Cheques issued amounting to $1600.40 not appeared on the
bank statement
• A cheque received for $1906.00 was posted in the cheque book
for $1609.00
• Bank charges of $25 were incorrectly posted to the wrong side of
the cash book
• A cheque for $120.60 was paid in, but has, not yet been credited
on the bank statement
Tasks
(a) Prepare
(i) a statement of adjustments to be made to the cash book
balance
(ii) a bank reconciliation statement as at 30 November 20X6
(b) Give two of the most common reasons why the cash
book balance and the bank balance may differ.