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By S.K Chik

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  1. Bank Reconciliation By S.K Chik

  2. Introduction • At each given date, our banker should send us a statement which shows the details of our bank transactions during a particular period and the balance at that date. We call this statement the “bank statement”

  3. Theoretically, our company’s bank account in the cash book column should have the same transactions and balance as recorded by the bank statement. • The only difference is that the former is prepared by our firm while the latter is done by the banker • However, in practice, the balance from the bank statement seldom agrees with the balance from the bank account in the cash book.

  4. Reasons for differences • Bank interest and commission The banker calculates these charges, the amount will first appear on the bank statement and cannot be entered into the cash book until the statement is received. • Uncredited Cheques Some cheques that we have received but not yet deposited or deposited but not yet credited on the bank statement because the cheques have not been ”cleared”

  5. 3. Unpresented Cheques Cheques issued sent to creditors have been recorded in the cash book but they have not been presented to the bank for payment, so the corresponding entry in the bank statement may not appear until several days later. 4. Autopay – Standing Orders and Direct debits The banker pays regular amounts on behalf of our company, this amount paid will first appear on the bank statement at the appropriate date, but may not have been entered in the cash book. 5.Credit transfer Sometimes debtors may not send us the cheques for settlement but directly deposit money into our bank account. (e.g. EPS) This amount received will first appear on the bank statement and cannot be entered into the cash book until the bank statement is received.

  6. 6. Dishonored/ Returned Cheques 7. Errors made by the banker or by the company

  7. Adjustments • We should adjust the balance of cash book in order to agree the balance of bank statement • The difference that cash book has not been entered the transactions of Bank interest, Standing orders, Direct debits, Credit transfer and dishonored Cheques should be adjusted in Cash book

  8. Cash Book (Bank) 20X6 $ Jan 25 Balance b/ f 100 28 Sales 200 31 Sales 500 750 Feb 1 Balance b/ d 700 20X6 $ Jan 30 Mr. A 50 31 Bal c/ d 700 750 Hong Kong Bank LTD. Gradeplus Co. Bank Statement Date 20X6 Jan 25 26 28 30 31 Particulars Balance b/ f Cheque #901 Cash deposit (sales) Cash deposit (Mr. B) Standing order - rent Withdrawals (Dr.) $ 30 40 Deposits (Cr.) $ 20 150 Balance $ 130 (Cr.) 100 (Cr.) 120 (Cr.) 270 (Cr.) 230 (Cr.)

  9. Cash Book (Bank) 20X6 $ Jan 25 Balance b/ f 100 28 Sales 200 31 Sales 500 750 Feb 1 Balance b/ d 700 20X6 $ Jan 30 Mr. A 50 31 Bal c/ d 700 750 Hong Kong Bank LTD. Gradeplus Co. Bank Statement Date 20X6 Jan 25 26 28 30 31 Particulars Balance b/ f Cheque #901 Cash deposit (sales) Cash deposit (Mr. B) Standing order - rent Withdrawals (Dr.) $ 30 40 Deposits (Cr.) $ 20 150 Balance $ 130 (Cr.) 100 (Cr.) 120 (Cr.) 270 (Cr.) 230 (Cr.) Unpresented Cheque Overstated $180  Uncredited Cheque Understated balance of $50 Unpresented Cheque (adjusted)  Credit transfer Standing Order

  10. Adjustments Cash Book (Bank) 20X6 $ Jan 31 Balance b/ f 700 31 Credit transfer 150 31 Understated balance 50 900 Feb 1 Balance b/ d 860 20X6 $ Jan 31 Standing Order 40 31 Bal c/ d 860 900

  11. Bank Reconciliation Statement as at 31 January 20X6 $ 50 500 180 $ 860 910 (680) 230 Balance as per cash book Add: Unpresented Cheque Less: Uncredited Cheque Bank error (understated deposit) Balance as per bank statement Bank Reconciliation Statement

  12. Instead of commencing with the cash book balance, the bank reconciliation statement can commence with the bank statement balance and end with cash book balance as follows: Bank Reconciliation Statement as at 31 January 20X6 $ 500 180 50 $ 230 680 910 (50) 860 Balance as per bank statement Add: Uncredited Cheque Bank error (understated deposit) Less: Unpresenited Cheque Balance as per Cash Book

  13. Example: • At the close of business on 28 February 19X9 the cash book of Mr. Chong showed a balance of $625 in his bank. The figure differed from the bank balance as shown on his bank statement. The following matters account for the difference: • On 28 February 19X9 one of his debtors had paid direct to Mr. Chong’s banking account the sum of $42. This transaction had not been entered in the cash book. • During February 19X9 the bank had allowed Mr. Chong interest amounting to $54 but this had not yet appeared in the cash book. • Certain cheques drawn by Mr. Chong during February 19X9 had not been presented for payment by the close of business on 28 February 19X9. These were for $21, $17. $57 and $61. • A standing order for $75 being one quarter’s rent had been paid by the bank on Mr. Chong’s behalf but this had not yet been entered in the cash book. • During February 19X9, Mr. Chong had paid into his banking account a cheque for $44 which he had received from a debtor’s bank. The appropriate entry appeared on the bank statement but not in Mr. Chong’s cash book.

  14. Required: • Write up the cash book starting with balance of $625 and draw up the bank statement but not in Mr. Chong’s cash book.