Week 12 Bank reconciliation statements Learning Objectives 1

Week 12 Bank reconciliation statements Learning Objectives 1. 2. 3. Purpose of bank reconciliation statements Reconcile cash book balances with bank statements Reconcile ledger accounts to supplier’s statements P 3 C 30 - 1

Bank Reconciliation Statement C 30 - 2

Current Account C 30 - 3

The Bank Reconciliation • Individuals & business having ‘Current Account’ with a bank will, receive a periodic bank statement from a bank • The bank statement lists all deposits (into bank a/c) & payment (from bank a/c) during the period, and also the ending balance of the current account C 30 - 4

The Bank Reconciliation • Bank statement – the customer will check to see if all transactions in the accounts and the balances are as per the record in the business • Usually the records in the business and the bank statement are not exactly the same. • Some of the transactions does not appear in the business records/bank statement. C 30 - 5

The Bank Reconciliation • Bank reconciliation to do necessary adjustment to our (business) records and come up with the same ending balance as recorded by the bank i. e. to reconcile the balances • As neither the record in the bank nor the business records has been wrong C 30 - 6

Bank Reconciliation • Analysis explaining the difference between a business book balance of cash and its bank statement balance • Must be prepared monthly to justify amounts reported in the bank statement and the bank account that kept by the business. C 30 - 7

BANK STATEMENT AND CASH BOOK (BANK COLUMN) • Bank statement is normally debited with payments or charges and credited with receipts of the business – Example of payments and charges : cheques drawn in favor of account payable or suppliers, bank charges, direct debits and standing order/instructions. – Examples of receipts : deposit of money or cheques, dividend, interest on current account and bank GIRO credits or credit transfer C 30 - 8

BANK STATEMENT AND CASH BOOK (BANK COLUMN) • Bank account is normally debited with receipts (deposit of money or cheques) and credited with payments (cheques drawn in favour of account payable or supplier) of the business. – Sample of Bank Statement and Bank Account– refer the page 358 Exhibit 30. 1 C 30 - 9

Bank Statement Balance vs. Bank Account Balance • Ending balances in bank account and bank statement are not the same due to: 1. Items recorded in the bank account but not recorded yet by the bank 2. Items recorded in the bank statements but recorded yet by the business 3. Errors C 30 - 10

Bank Statement Balance vs. Bank Account Balance 1. Items in the Bank Account but Not Recorded Yet by the bank. Eg. : – Deposit Not Yet Recorded eg. cheques not cleared or money not yet credited but business has recorded – Unpresented Cheques i. e. payment made by cheques to suppliers but have not been. Bank account has been credited for payment but money in bank account has not been debited yet by the bank C 30 - 11

Bank Statement Balance vs. Bank Account Balance 2. Items recorded in The Bank Statement but Not Recorded Yet by the Business eg. : – Direct Debit i. e. payment has been debited by bank i. e. money decreased for items such as insurance premiums, rates, fees, subscriptions, etc. – Standing instruction order – schedular instruction for payment eg. insurance premiums, rates, subscription – Bank service Charge - fee charged by the bank for the operating the account for the businesses eg. issuing the cheque book, collection services C 30 - 12

Bank Statement Balance vs. Bank Account Balance 2. Items recorded in The Bank Statement but Not Recorded Yet by the Business, cont: – Fund transfer via bank i. e. amount paid by creditor/customer direct into the business bank account (Example : EFT) – Interest Revenue on Current Account – interest/ dividend on bank credit balances – Returned / dishonored cheques - cheques that the business as payment but are not paid by bank C 30 - 13

Bank Statement Balance vs. Bank Account Balance 3. Errors – Errors made by the bank – wrongly debited/credited, wrong amount – Errors made by the business eg. wrongly debited/credited / wrong amount C 30 - 14

Reconcile cash bank balances with bank statement balance / Reconcile ledgers account to supplier statements The process in Preparation of Bank Reconciliation Statement Updating the Bank Account 1. Matching of entries on the bank statement with those n the bank account , this is done by ticking items that appear both in the bank statement and in the bank column. 2. Items appearing in the bank statement but not in the bank account are transferred the bank account 3. There would still be items in the bank accounts left unticked and they would be treated as either unaccredited lodgment (if it a debit items) or as unpresented cheques (it a credit item) and these items would be deal with the bank reconciliations statement later on. 4. An errors relating to the bank account would be dealt with at this stage. For example if as a result of the error the debit column bank account has been understated, credit the bank account with the amount. 5. Complete the necessary double entry and carried the balance of the bank account. C 30 - 15

PREPARING THE BANK RECONCILIATION STATEMENT a) START WITH UPDATED BANK ACCOUNT BALANCE Bank Reconciliation Statement as at…. . RM Balance as per updated bank account xx Add : Unpresented cheques xx xx Less : Unaccredited lodgment (xx) Balance as per bank statement xx C 30 - 16

RECONCILING THE BANK ACCOUNT • Adjusting the Balance per Books • The step of the bank reconciliation is to adjust the balance in the company's Cash account so that it is the true, adjusted, or corrected balance. Examples of the items involved are shown in the following schedule: Step 2. Balance per BOOKS on Aug. 31, 2008 Adjustments: Deduct: Bank Service Charge Deduct: NSF cheque / fees Deduct: Cheque Printing Charge Add: Interest Earned Add: Notes Receivables collected by bank Add or Deduct: Errors in company's Cash account Adjusted/Corrected Balance per Books C 30 - 17

PREPARING THE BANK RECONCILIATION STATEMENT b) START WITH BALANCE AS PER BANK STATEMENT Bank Reconciliation Statement as at…. . RM Balance as per bank statement xx Add : Unaccredited lodgment xx xx Less : Unpresented cheques (xx) Balance as per updated bank account xx C 30 - 18

RECONCILING THE BANK ACCOUNT • Adjusting the Balance per Bank • The step is to adjust the balance on the bank statement to the true, adjusted, or corrected balance. The items necessary for this step are listed in the following schedule: Step 1. Balance per Bank Statement on Aug. 31, 2008 Adjustments: Add: Uncredited cheque/ Late Deposit/ Deposit in Transit Deduct: Unpresented / Outstanding Cheque Add or Deduct: Bank Errors Adjusted/Corrected Balance per Bank C 30 - 19

RECONCILING THE BANK ACCOUNT • Comparing the Adjusted Balances • After adjusting the balance per bank (Step 1) and after adjusting the balance per books (Step 2), the two adjusted amounts should be equal. If they are not equal, you must repeat the process until the balances are identical. The balances should be the true, correct amount of cash as of the date of the bank reconciliation. C 30 - 20

End of Week 12 C 30 - 21