BANK RECONCILIATION STATEMENT Definition Bank Reconciliation statement is

BANK RECONCILIATION STATEMENT Definition: Bank Reconciliation statement: is the comparison between the bank statement balance and cash book balance. Bank Reconciliation statement : is a statement prepared by the bank customer in order to reconcile or to (show the agreement ) the difference between the bank statement and the cash book balance.

CONTINUE…………… 1. Bank statement: is a statement which the entries recorded by the bank for money draw and money deposit into the bank by the account holder. 2. Bank balance: is the balance appear in the bank column of the cash book. 3. Bank statement balance: is the balance appear on the bank statement or “pass book”.

CONTINUE……………… WHAT IS A “PASS BOOK”? A “pass book” : is a suitable book ruled by which entries recorded by the bank for money draw and money deposited by customers. A pass book is a book used to record the number of customers /account holders who have deposited /withdraw amount of money from the bank concerned.

CONTINUE………. . 1. The balance shown by the cash book and balance shown by the bank statement on any particular day should be the same generally. 2. But because the cash book is maintained by the businessfirm and the bank statement is maintained by the bank. It is quite often to find that the balances are different.

1. ENTRIES MADE IN THE CASH BOOK BUT NOT RECORDED IN THE BANK STATEMENT 1. Unpresented cheque: A cheque issued by the business-firm “but is not presented for payment to the bank. 2. Uncredited cheque: A cheque deposited, but not yet credited by the bank 3. Dishonoured cheque: is a cheque which a bank refused /denied to honour a cheque due to some reasons-

CONTINUE………. REASONS TO DISHONOUR A CHEQUE 1. A cheque may be stale/outdated cheque. 2. The drawer has no sufficient(enough) fund(money) to his/her account. 3. May be the cheque is not signed by the drawer. 4. The amount in words and in figures are different. 5. There might be some errors in the cash book.

CONTINUE………. . THE PARTIES TO A CHEQUE a. Drawer: is a person who writes a cheque for payment. b. Drawee: is a bank on which the cheque is drawn. c. Payee: is a person who receives the cheque.

2. ENTRIES MADE IN THE BANK STATEMENT BUT NOT IN THE CASHH BOOK 1. Standing order(direct payment) : is an instruction given to the bank to make regular payment on behalf of the Account holder. eg rent , insurance and etc. 2. Bank charges, interest charges cost of cheque and commission etc. . These items debited directly by the bank and will appear on the bank statement which the cash book will not have.

CONTINUE………. . 3. Dividend: Received by the bank but not yet recorded in the cash book.

REVIEW The causes of the discrepancies(differences) or reasons between the cash book balance and the bank statement balance. a-----------------------------------b------------------------------------c------------------------------------d------------------------------------e------------------------------------f-------------------------------------

CONTINUE…………. . (a) In the real world the amount stated in bank statement , as a customer’s bank balance on a particular date, is unlikely to be the same as the balance in that customer’s cash book Required: List six reasons leading to the situation mentioned above. 1 ---------------------------------2 ---------------------------------

CONTINUE…………. Define 1. Pass book is a ------------------------------2. bank Reconciliation statement----------------3. Five reasons to dishonor a cheque a. ----------------------------b----------------------------

CONTINUE……………. Mention 03 entries made in the bank statement but in the cash book. 1 ------------------------------------2 ---------------------------------3 ------------------------------------

FORMAT ADUSTED CASH BOOK Balance b/f Dividend Credit transfer x xx Balance b/f xx Bank charges Standing order Dishonoured cheque Balance c/f x xx xx

CONTINUE-------1. Starting with balance as per adjusted cash book. Bank Reconciliation statement as at--------Balance as per adjusted cash book Add: unpresented cheque Less: uncredited cheque Balance as per bank statement x x x ( x) xx

FORMAT 2. Starting with balance as cash book Bank Reconciliation statement as at------Balance as per cash book x Add: unpresented cheque x Dividend x Credit transfer x x x Less: uncredited cheque x

CONTINUE-------Standing order Bank charges Dishonoured cheque Balance as per bank statement x x x ( x) x

FORMAT 3. Starting with balance as per bank statement Bank Reconciliation statement as at------Balance as per bank statement x Add: uncredited cheque x Standing order x Bank charges x Dishonoured cheque x x x

CONTINUE…………. . Less : unpresented cheque Dividend Credit transfer Balance as per cash book x x x ( x) x

EXERCISE: 1 From the following information draw up a bank Reconciliation statement as on 31 st December 2006. Balance as per bank statement 15, 510, 000/= Balance as per cash book 18, 630, 000/= Two cheques amounting to 4, 270, 000/= had not yet been credited by the bank. A cheque amounting to 1, 150, 000/= had not yet been presented to the bank for payment.

EXERCISE: 2 On 31 st Dec 2009 , the Cash book balance of Veneranda was sh. 25, 370, 000/= whereas the bank statement showed a credit balance of sh. 25, 670, 000/=. The following were discovered (a) Cheque not presented for payment sh. 12, 340, 000/= (b) Cheque paid into the bank but not credited by the bank 12, 160, 000/= (c) Items shown in the bank statement but not yet entered in the cash book

CONTINUE-----(i) Bank charges sh. 240, 000/= (ii)Standing order sh. 460, 000/= (iii)Dividend collected by the bank sh. 820, 000/= Required: (a)Adjust the Cash book to show the correct cash book balance. (b)Prepare a Bank Reconciliation statement starting with the adjusted cash book balance.

EXERCISE: 3 The bank statement prepared by the bank for Burudika Company showed a balance of cash on deposit at July 31 st of sh. 5, 000, 170. The Burudika Company’s records at July 31 st showed a bank balance of sh. 4, 182, 570. The differences between the cash book and the bank statement balance were caused by the following factors: (i) A deposit of sh. 310, 900 mailed to the bank on July 31 st does not appear on the bank statement.

CONTINUE………. (ii) A credit memorandum issued by the bank on July 30 th in the amount of sh. 500, 000 was returned with the July bank statement and appears in the deposits column of that statement. This credit represents the proceeds of a note receivable left with the bank by Burudika Company for the purpose of collection. The collection of the note has not yet been recorded by the Burudika Company. (iii)Four cheques issued in July or prior months have not yet been paid by the bank. These cheques are:

CONTINUE………… Cheque No: Date Amount 801 June 15 th 100, 000 888 July 24 th 10, 250 890 July 27 th 402, 500 891 July 30 th 205, 000 (iv) A debit memorandum issued by the bank on July 31 st for sh. 12, 000 service charges was enclosed with the July bank statement.

CONTINUE………. (v) Cheque No. 875 issued in July 20 th in the amount of sh. 85, 000 was erroneously listed in the cheque stab and in the cash payment Journal as sh. 58, 000. (vi) No entry has been made in the Burudika Company ‘s accounts to reflect the bank’s action on July 30 th of charging against the account of the NSSF cheque for sh. 50, 250.

CONTINUE……… Required: (a) Update and correct the balance per depositor’s records. (b) Prepare bank Reconciliation statement.

EXERCISE: 4 From the following , draw up a bank reconciliation statement from details as on 31 st Dec 2012. Cash at bank as per bank column of the cash book 3, 000 Unpresented cheques 800 Cheques received and paid into the bank, but not yet entered on the bank statement 600 Credit transfer entered as banked on the bank statement but not entered in the cash book 300. Cash at bank as per bank statement 3, 500

THANKS FOR YOUR COOPERATION BY, JUMA ODA: II-ACCOUNTS CONTACT: 0 903