Bank Reconciliation Statements Chapter 8 © Luby & O’Donoghue (2005)
-
Upload
lambert-anthony -
Category
Documents
-
view
220 -
download
2
Transcript of Bank Reconciliation Statements Chapter 8 © Luby & O’Donoghue (2005)
Bank Reconciliation Bank Reconciliation StatementsStatements
Chapter 8Chapter 8
© Luby & O’Donoghue (2005)© Luby & O’Donoghue (2005)
TerminologyTerminology
Current accountCheque clearingBank overdraftDirect debitStanding orderCredit transferDishonoured chequeBank statement
Comparison of recordsComparison of records
DR Cash Book CR
Bank € Bank €
1 March Balance b/d 2,500
1 March Sales a/c 5,000
Date Transaction details Debit Credit Balance
1 March Balance Forward €2500.00
1 March Lodgement €5000.00 €7500.00
BusinessBusiness
BankBank
The need for a bank The need for a bank reconciliationreconciliation
A bank statement will be received from the bank.The balance on the bank statement should be compared with the balance on the bank account in the ledger.The two balances are not likely to be the same:
Timing differencesItems on the statement not in the ledger accountsErrors
A reconciliation is carried out to verify that the balances are correct.
Reasons for differencesReasons for differences
Items that are in the bank statement but are not in the cash book
Automatic payments through the banking systemBank chargesDishonoured cheques
Items that are recorded in the cash book but not appearing in the bank statement
Un-presented chequesUn-cleared lodgements
ApproachApproach
Step 1Step 1 Each item in the bank statement needs to be traced to
the cash book in order to identify all items that appear in the bank statement but are not in the cash book. All such items should then be entered in the cash book and a new updated balance calculated.
Step 2Step 2 Each item in the cash book should be traced to the bank
statement so as to identify bank deposits and cheques drawn that are not appearing on the bank’s statement because the former are awaiting clearance and the latter are yet to be presented to the bank for payment. The bank reconciliation would look as follows.
Bank reconciliation statementBank reconciliation statement
Bank Reconciliation StatementBalance per bank statement xxx
Add: Lodgements not on statement xxx
Less: Unpresented cheques (xxx)
Balance per corrected cash book xxx
You are required to 1. Update the cash book 2. Prepare the bank
reconciliation statement
Example 1Example 1 Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
Date Particulars Debit Credit Balance
1 Aug Balance 1,200
6 Aug Cheque 201 525 675
11 Aug Lodgement 25 150 825
12 Aug Cheque 202 750 75
23 Aug Lodgement 26 225 300
26 Aug Lodgement 27 1,500 1,800
25 Aug Cheque 203 1,250 550
26 Aug Cheque 204 260 290
31 Aug Direct Debit (Ins) 125 165
31 Aug Bank Charges 50 115
Preliminary workCompare and match each item on the bank statement with the cash book
Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
Date Particulars Debit Credit Balance
1 Aug Balance 1,200
6 Aug Cheque 201 525 675
11 Aug Lodgement 25 150 825
12 Aug Cheque 202 750 75
23 Aug Lodgement 26 225 300
26 Aug Lodgement 27 1,500 1,800
25 Aug Cheque 203 1,250 550
26 Aug Cheque 204 260 290
31 Aug Direct Debit (Ins) 125 165
31 Aug Bank Charges 50 115
Identify items on the bank statement omitted from the cash book and any errors made
Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
Date Particulars Debit Credit Balance
1 Aug Balance 1,200
6 Aug Cheque 201 525 675
11 Aug Lodgement 25 150 825
12 Aug Cheque 202 750 75
23 Aug Lodgement 26 225 300
26 Aug Lodgement 27 1,500 1,800
25 Aug Cheque 203 1,250 550
26 Aug Cheque 204 260 290
31 AugDirect Debit (Ins) 125 165
31 Aug Bank Charges 50 115
Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found
Cash Book
1 Sept Balance b/d 890 1 Sept Direct debit 125
1 Sept Bank charges 50
1 Sept Balance c/d 715
890 890
1 Sept Balance b/d 715
This is part 1 of question answeredThis is part 1 of question answered
Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation
Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
Bank Reconciliation
Balance as per bank statement 115
Add outstanding lodgements
Lodgement number 28 1,750
Less un-presented cheques
Cheque number 205 (1,150)
Balance as per cash book (corrected) 715
Part 2 of Part 2 of question question answeredanswered
Cash Book1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 19522-Jan Lodgement 105 720 21-Jan Cheque 3052 2,10025-Jan Lodgement 106 3,110 26-Jan Cheque 3053 18031-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,5298,479 8,479
31-Jan Balance b/d 3,529
Date Particulars Debit Credit Balance
1-JanBalanceCheque 3048
5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
31-Jan31-Jan
Direct Debit 175 5,505
Bank Charges 75 5,430
Example 2Example 2
You are required to 1. Update the cash book 2. Prepare the bank
reconciliation statement
Opening balances disagree
Preliminary workCompare and match each item on the bank statement with the cash book
Cash Book
1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 195
22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100
25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180
31-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,529
8,479 8,479
31-Jan Balance b/d 3,529
Date Particulars Debit Credit Balance
1-JanBalanceCheque 3048
5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
31-Jan31-Jan
Direct Debit 175 5,505
Bank Charges 75 5,430
As the opening balances disagree, you need to identify items relating to last month and reconcile opening balances
Date Particulars Debit Credit Balance
1-Jan Balance
Cheque 3048
5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
31-Jan31-Jan
Direct Debit 175 5,505
Bank Charges 75 5,430
Opening reconciliation
€
Opening balance statement 5,130
Add unpresented cheques (1,120 + 450) 1,570
Opening balance cash book 3,560
Identify items on the bank statement omitted from the cash book and any errors made
Cash Book
1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 195
22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100
25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180
31-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,529
8,479 8,479
31-Jan Balance b/d 3,529
Date Particulars Debit Credit Balance
1-JanBalanceCheque 3048
5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
31-Jan31-Jan
Direct Debit 175 5,505
Bank Charges 75 5,430
ErrorError€€100 100 short short in cash in cash bookbook
Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found
Cash Book
31-Jan Balance b/d 3,529 31-Jan Direct Debit 175
31-Jan Correction to 31-Jan Bank charges 75
Lodgement 106 100 31-Jan Balance c/d 3,379
3,629 3,629
31-Jan Balance b/d 3,379
Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation
Cash Book
1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 195
22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100
25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180
31-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,529
8,479 8,479
31-Jan Balance b/d 3,529
Bank Reconciliation Statement
€
Balance as per bank statement 5,430
Add outstanding lodgements
Lodgement 107 199
Less un-presented cheques
Cheque 3054 (2,250)
Balance as per cash book (corrected) 3,379
Example 3Example 3Cash Book
1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 340
10,900 10,900
1 Mar Balance b/d 400Bank Statement
Date Debit Credit Balance
1 Feb Opening balance 500
5 Feb Cheque 19562 3,380 (2,880)
7 Feb Lodgement 715 2,230 (650)
8 Feb Bank interest 13 (637)
9 Feb Cheque 19561 45 (682)
14 Feb Lodgement 716 3,100 2,418
19 Feb DD Telecom 225 2,193
19 Feb Cheque 19564 4,220 (2,027)
22 Feb Lodgement 717 1,770 (257)
24 Feb Dishonoured cheque 98 (355)
25 Feb Cheque 19563 290 (645)
25 Feb Cheque 19565 1,680 (2,325)
28 Feb Bank charges 39 (2,364)
You are required to 1. Update the cash book 2. Prepare the bank
reconciliation statement
Preliminary workCompare and match each item on the bank statement with the cash book
Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 340
10,900 10,900
1 Mar Balance b/d 400Bank Statement
Date Debit Credit Balance
1 Feb Opening balance 500
5 Feb Cheque 19562 3,380 (2,880)
7 Feb Lodgement 715 2,230 (650)
8 Feb Bank interest 13 (637)
9 Feb Cheque 19561 45 (682)
14 Feb Lodgement 716 3,100 2,418
19 Feb DD Telecom 225 2,193
19 Feb Cheque 19564 4,220 (2,027)
22 Feb Lodgement 717 1,770 (257)
24 Feb Dishonoured cheque 98 (355)
25 Feb Cheque 19563 290 (645)
25 Feb Cheque 19565 1,680 (2,325)
28 Feb Bank charges 39 (2,364)
Identify items on the bank statement omitted from the cash book and any errors made
Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 340
10,900 10,900
1 Mar Balance b/d 400Bank Statement
Date Debit Credit Balance
1 Feb Opening balance 500
5 Feb Cheque 19562 3,380 (2,880)
7 Feb Lodgement 715 2,230 (650)
8 Feb Bank interest 13 (637)
9 Feb Cheque 19561 45 (682)
14 Feb Lodgement 716 3,100 2,418
19 Feb DD Telecom 225 2,193
19 Feb Cheque 19564 4,220 (2,027)
22 Feb Lodgement 717 1,770 (257)
24 Feb Dishonoured cheque 98 (355)
25 Feb Cheque 19563 290 (645)
25 Feb Cheque 19565 1,680 (2,325)
28 Feb Bank charges 39 (2,364)
Error €100 overError €100 over
Error €9 overError €9 over
Error €261 shortError €261 short
Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found
Cash Book
1 Mar Error cheque 19561 9 1 Mar Balance b/d 400
1 Mar Bank interest 13 1 Mar Error cheque 19563 261
1 Mar Balance c/d 1,101 1 Mar Error lodge 717 100
1 Mar DD Telecom 225
1 Mar Dishonoured cheque 98
1 Mar Bank charges 39
1,123 1,123
1 Mar Balance b/d 1,101
Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation
Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 340
10,900 10,900
1 Mar Balance b/d 400
Bank Reconciliation Statement€
Balance as per bank statement (2,364)Add outstanding lodgements Lodgement 718 2,150 Lodgement 719 650 2,800Less unpresented cheques Cheque 19560 1,160 Cheque 19565 37 Cheque 19566 340 (1,537)Balance as per cash book (corrected) (1,101)
Advantages of bank Advantages of bank reconciliationsreconciliations
It confirms the accuracy of the bank figure in the
company’s records.
It can help in identifying errors and fraud within the
company.
It can help identify errors made by the bank.
Other control aspectsOther control aspects
Dealing with cash
Dealing with cheques
Dealing with debit / credit cards