Barbara Cooney
Bank reconciliation
Learning Objectives1. Explain the bank account per the business
books (NL) versus the bank statement received from the bank
2. Compare the bank account per the business books (NL) versus the bank statement. Explain the differences?
3. Explain the functions of a bank reconciliation statement
4. Update cash book5. Prepare a bank reconciliation statement
Methods of Receipts and PaymentsReceiptsCheques receiptBank interest
incomeCredit transfer
(C/T)
PaymentsCheques paymentBank chargesInterest chargesStanding order
(S/O)Direct debit (D/D)
Payments by a BankStanding Order is the
instruction given by the depositor to the bank to make regular payment with a fixed amount to a specific person automatically from the depositor’s bank account.
S=Same
Direct debit is the instruction given by the depositor to the bank to pay the money with a variable amount directly from the depositor’s bank account from time to time.
D=different
Bank account per your books (Asset)
Dr Cr Drying your eyes Crying
your eyesMoney in / good thing
Money out / bad thingReceipt / Deposit Payment
/ WithdrawalIncrease in Asset Decrease in
an asset
Bank a/c per your books –Exercise: Dr or Cr side???
InsuranceElectricityPaying a creditor (by cheque)Money from a debtor (cheque)Gas bill by DDTelephone bill by SO Sale by chequeReceipt of capitalPetty cash top-upBank chargesLodgement into your bank a/c
Bank statement – From the view of the bank
Dr CrMoney out
Money in Withdrawal/payment
Receipt / Deposit
Bank statement – an example
Purpose of Bank reconciliation - comparing
1. What the bank say you have V What you think you have
2. Bank statement balance V What is on your books (NL)
3. Verifying the bank balance per your books is correct (for audit purposes)
When there is a difference
Bank reconciliationCompares / Reconciles / highlight
differences
Bank statement balanceVBank account per your books (NL)
Reasons for differences
Reasons for DifferencesTime differences in recording - Money lodged in
bank but not cleared or bank statement not updated by time sent out, cheques not presented by creditor
Unknown transactions – bank charges, Dishonored cheque, credit transfers, DD
Errors occurred on the Bank account of your books and/or the Bank Statement e.g. entering on wrong side, incorrect amount
Unpresented ChequesThey have not been presented to the
bank for money.
Steps to Creating bank reconciliation
Compare the bank account per NLs to bank statement, tick for common items. Usefor items not on bank statement
Compare bank statement to bank a/c per NL => mark common items with and mark items with not on bank a/c (NL)
Update the bank a/c per NL. Start with b/d at the end of the old bank a/c
Balance the updated bank a/c per NL
Prepare bank reconciliation
Think good or bad surprise?
Updating bank a/c per books – remember
Bank account per your books (Asset)
Dr Cr Drying your eyes Crying
your eyesMoney in / Good thing Money out /
bad thing Receipt / Deposit Payment
/ WithdrawalIncrease in Asset Decrease in
an asset
Think good or bad surprise?
Bank reconciliation statementBalance (at end) as per bank statement
x
Add lodgements not yet credited by the bank +
Less cheques not yet presented for payment -
Balance (at end) of adjusted bank account (book) x
Learning Objectives re-visited
1. Explain the bank account per the business books (NL) versus the bank statement received from the bank
2. Compare the bank account per the business books (NL) versus the bank statement. Explain the differences?
3. Explain the functions of a bank reconciliation statement
4. Update cash book5. Prepare a bank reconciliation statement
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